Arkema SA

PAR:AKE

Earnings Call Transcript 2023-Q1

[Operator]

Thank you for holding, and welcome to Arkema's First Quarter 2023 Results Presentation. For your information, this call is being recorded. [Operator Instructions]

I will now hand you over to Thierry Le Henaff, Chairman and CEO. Sir, please go ahead.

[Thierry Le Henaff, Chairman & CEO]

Thank you very much. So good morning, everybody, and welcome to Arkema's Q1 2023 results conference call. Joining me today are Marie-Jose Donsion, our CFO; and the Investor Relations team. As always to support this conference call, we have posted a set of slides, which are available on our website. I will comment the highlights of the quarter before letting Marie-Jose go through the financials. And at the end of the presentation, we will be available as usual to answer your questions.

After, as you know, an exceptional performance in the first half of last year, driven by upstream acrylics and PVDF in China. We knew Q1 2023 would come back to more normalized levels, especially given the challenging economic environment marked by destocking and weaker demand on specific end market, notably constructions. In this context, we delivered a solid set of results, of course, clearly lower relative to last year, but still comparable to 2021 and pre-COVID levels despite weak volumes.

Here are some key points I would like to highlight. We delivered an EBITDA of EUR367 million, broadly in line with our expectations, maybe even a bit better in Adhesives and Performance Additives and consistent with our full year EBITDA guidance. This performance includes the reversal of last year's overrunning PVDF and upstream acrylics, mainly in the first half -- which was mainly in the first half last year.

It also reflects the more difficult macroeconomic conditions versus Q1 2022, which materialized in most end market, except for automotive, aeronautics and oil and gas, but which combined only represent a relatively low share of our sales. Our volumes were lower year-on-year due to poor demand in Europe, slowdown in construction in the U.S. and significant destocking in batteries chain, temporary but significant in China, which impacted PVDF.

Excluding PVDF volume in China are pretty much in line with last year level for our Specialty Market's Materials against a rather low comparison base. Looking briefly at the performance of our Specialty Materials segment. Adhesive had a solid quarter with a resilient EBITDA margin, thanks to our mix towards more value added solutions. Our pricing actions and the benefit from Ashland, which continues to perform well.

In Advanced Materials, we had the headwind from PVDF and also some impact from the strike in France, which overshadowed some good new business developments already aligned with megatrends and also a solid U.S. business in high performance polymers. Performance Additives delivered frankly a very resilient performance despite some lower volumes.

In coatings, we benefit from solid pricing in the downstream in the context of broad destocking, but as expected, we suffered from last year's elevated comparison base in the upstream business. Beyond these financials with sustainability at the core of our strategy, we are very happy to announce that SBTi with approved our ambitious next term climate plan on a 1.5 degree trajectory across the whole value chain.

As you see the press release today, given the strength of our results in our decarbonization path in the past couple of years, we further raised our commitment and will reduce greenhouse gas emissions by 2030 for both Scopes 1+2 and Scope 3, even further than we had planned. So I am really proud of our team's work in this area and very happy to be part of the few companies with an SBTi approved 1.5 degrees, such as near-term trajectory.

During the quarter, we also continued to sharpen our portfolio with the divestment of Febex at the start of the year and our M&A strategy will continue this year to further strengthen our Specialty Materials. As always, we'll be patient and make sure acquisitions are a good strategic fit and offer significant synergy potential. On the organic project front, which are important as they will impact the second semester positively, we are entering the final stages of the start-up for our new bio based Polyamide plant in Singapore, which should contribute nicely in the second half of the year.

Over the past 15 years, also we enjoyed on this line very strong EBITDA growth, thanks to the positive evolution of the mix, our volume growth was really pretty much constrained by our plant's capacity. So the start-up of this new plant is really a breath of fresh air and we are really excited about its potential with new mirrors opportunities at a time where carbon footprint reduction is increasingly a key factor for our customers. We are also making good progress. We are very pleased with it. In our other organic CapEx projects, including Nutrien, which will start shortly, Febex, PVDF in France and Sartomer in China.

So this was my summary and I'd like to 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-Jose Donsion, CFO]

Thank you, Thierry. As usual, I'll start with the sales bridge. EUR2.5 billion sales decreased by nearly 13% year-on-year. Volumes were down 18%, reflecting notably the less favorable demand conditions in upstream acrylics and PVDF, as well as the soft demand in construction and coating applications. The global price effect came in at plus 2.7%, reflecting the resilience of our pricing in Adhesives, Performance Additives and Coating Additives.

The scope effect is positive at plus 2.2%, thanks to the two-month additional contribution of Ashland acquisition. And the currency effect is limited at 0.8% and may become negative as the U.S. dollar continues to devalue versus the euro. Q1 EBITDA at group level came in at EUR367 million. Detailing it by segment, we have Bostik, we achieved an EBITDA of EUR93 million, up 3%. Volumes remained on the low side in construction-related markets, but our pricing to firm and we benefited from tight cost management.

The EBITDA margin was stable at 13.3% despite lower volumes and mechanically diluted impacts of price increases. Since actually, we benefited from resilient engineering adhesive applications and accretive M&A. Advanced Materials EBITDA stood at EUR160 million. We saw contrasting trends here with Performance Additives being very much in line with last year. However, the lower contribution from PVDF in China, which we have clearly identified since last year and some disruption from France strikes, weighted on the segment's profitability.

EBITDA in Coating Solutions came in at EUR94 million with margin above 14%. While much lower than last year's exceptionally high level when our upstream activities enjoy very tight market conditions, this is actually a good performance in the context of weak demand, especially in construction. We notably managed to hold on to pricing in the downstream, partly reflecting ongoing assets to position our range of products towards more Biobase and ecofriendly solutions.

Finally, Intermediates EBITDA stood at EUR49 million. We had, on the one hand, lower volumes and less favorable market conditions in Asia Acrylics. And on the other hand, continued positive pricing dynamics in fluorogases. Depreciation and amortization stood at EUR133 million, leading to a recurring EBIT of EUR234 million and an EBIT margin of 9.3%.

Non-recurring items amounted to EUR38 million that include roughly EUR30 million of PPA depreciation and amortization; EUR28 million for one-off charges, restructuring, legal expenses and the start-up costs of our Polyamide 11 plant in Singapore; and a net positive of EUR21 million from the gain of our divestment of the Febex plant.

Financial expenses stand at EUR19 million on the back of higher interest rates for our U.S. dollar swap debt. And we also bond the cost of the additional EUR400 million bond issued in January. The tax charge at EUR41 million reflects the group's lower results and is in line with our full year tax rate guidance of 21% of recurring EBIT. Consequently, Q1 adjusted net income stood at EUR162 million, which corresponds to EUR2.17 per share.

Moving on to cash flow and net debt. Q1 recurring cash flow amounts to EUR21 million negative. It reflects the usual first quarter working capital seasonality and working capital ratio on annualized sales actually stands at 16.3% versus 14% last year. The higher level being linked to some restocking following the low point of year end 2022.

Total capital expenditure amounted to EUR89 million in the quarter, including decreasing exceptional CapEx of EUR7 million versus EUR40 million last year as our two major projects get closer to completion. In terms of M&A, we cashed in EUR30 million linked to the sale of Febex, obviously, compared to a EUR1.5 billion outflow in Q1 last year corresponding to the acquisition of Ashland.

Net debt at the end of March 23, therefore, amounts to EUR2.4 billion, including a EUR700 million of hybrid bonds unchanged versus the end of '22 level. The net debt last 12 months EBITDA ratio stands at 1.3 times. And this concludes my presentation. Thank you for your attention.

And I'll now hand it over to Thierry for the outlook.

[Thierry Le Henaff, Chairman & CEO]

Okay. Thank you, Marie-Jose, for your summary. Currently, a surprise on the macroeconomic environment is still weak. And for this reason, we are still operating in the context of weak volumes and limited visibility. So this is, as you know, especially the case in Europe, which is impacted by different elements, including inflation, lack of competitiveness with energy and uncertainties linked to the Ukraine conflict. The U.S. has slowed down in certain markets, but we still believe and from our standpoint that it will continue to show greater resilience than Europe, clearly.

And as you know, we are strong in this part of the world. And with regard to Asia, no obvious signs of a rebound, but we believe that at a certain point, it will start to improve even if gradually. So clearly, in this type of environment, we have seen it in the past. We know what we have to do. We'll continue to focus on what we control, managing fixed cost, strict management of working capital. You saw what we did at the end of last year in order to continue to generate, which is part of our DNA, solid cash flow and keep at the end of the year on the full year an elevated cash conversion ratio over 40%.

So as we say in this context where the macro is not really showing any of your signs of improvement. We believe and it started like that, that Q2 will be the continuity in terms of volume of Q1 and also with limited visibility. Given the seasonality and some relief on the raw material and energy, we believe that Q2 EBITDA should be a little bit better than Q1, which means fully in line with our full year guidance.

As we explained to you already, we believe that the H2 will be a bit better than the H1 to reach this guidance. So we are completely in the -- still in this H2 supported by two main reasons: the first one being some gradual improvement on the macro. And even without that, just if you take out most of the destocking, volume will be better.

And the second part, which is more specific to Arkema, will benefit from some new projects that you know, which will contribute on the second half between EUR50 million and EUR70 million in EBITDA. So for all this reason, we are comfortable to confirm our annual guidance and aim to achieve in 2023 an EBITDA of around EUR1.5 billion to EUR1.6 billion, as we said already earlier in the year.

Longer term, because we are working on two horizons: short term and long term. We still believe that we have a very valuable asset to leverage, which position us very well to capture what is really the key point today as these opportunities from sustainability in areas like batteries, ecofriendly paints, 3D printing, home efficiency, circular economy, we have plenty of opportunities will start to materialize. And we have also a robust balance sheet with a debt-to-EBITDA ratio at 1.3, which enabled us to implement our project regarding major CapEx and also some bolt-on M&A.

We are really more and more on innovation, sustainability-driven company with the ambition of being a global leader in Specialty Materials. Our positioning across our three core segments is unique and increasingly enables us to furnish a complementary range of solution to our customers under the one Arkema umbrella. As a reminder, I hope many of you will come to our Capital Market Day on September 27, when we will unveil new midterm financial targets and our vision for the future of Arkema.

So this is what we wanted to share with you today, we also have answer to your question. And thank you for your attention. And together with Marie-José, we are ready to start the discussion.

[Operator]

[Operator Instructions] Our first question comes from the line of Martin Roediger of Kepler Cheuvreux. Please go ahead.

[Martin Roediger, Kepler Cheuvreux]

Yes. Good morning, Thierry, Marie-Jose Donsion and the whole Arkema team. I have three questions, please. Regarding the Performance Additives business unit, which was relatively resilient in Q1. Can you provide some color why it was so resilient? Secondly, I wonder that your depreciation and amortization charges were sequentially down in Q1 versus Q4 despite your CapEx spending. What was the reason for that? And what should be the run rate when your PA11 plant is on the stream by end of the year?

And thirdly, on your Scope 3 emissions and your SBTi based target to reduce emissions from 152 million tonnes to 70 million tonnes by 2030. You mentioned several actions, i.e., increase in share of renewable or recycled raw materials, select raw materials with lower carbon footprint, reduced most emesis activities and develop polymer recycling channels. As such alternative raw materials available today, will you give a business? And does it come with higher costs? And if so, are your clients willing to pay for that? These are my questions.

[Thierry Le Henaff, Chairman & CEO]

Okay. So thank you, Martin. It's true to say that Performance Additives has been quite resilient for different reasons. So I would say this is also compared to the other segments of the company, they are far less impacted by the construction segment, which changed the picture clearly because as you know, construction has been really as a negative factor in the past six months. In terms of new business development, our new energies in Asia and also, as you know, biofuel in the U.S., we had really a lot of things going on.

So it's a good momentum on new business. And you know that it belongs to the Advanced Materials segment, which is in terms of new business, one segment, which is the most driven by sustainability. So you can see it. So it's a combination of good momentum of new business on one side and the fact that in terms of end market, and I should add also oil and gas, which is going well certainly segment, which is, let's say, change the most resilient picture at least for the start of the year. You could argue that we should see that also on the HPP side, which is the other part of Advanced Material, but HPP temporarily was eaten by batteries in China.

Maybe Marie-Jose on the second question of Martin?

[Marie-Jose Donsion, CFO]

Okay. So in fact, our depreciation and amortization is, at this point, very comparable to last year level. In fact, we expect an impact of the depreciation of the Singapore plant, so EUR450 million over a 20 year period, so roughly EUR23 million depreciation per year to start hitting the accounts in the second half of this year. So this should definitely have an effect on the run rate of the completion going forward. Once we start the amortization of these assets, same thing will occur to the Nutrien CapEx probably around the same period of time.

[Thierry Le Henaff, Chairman & CEO]

Thank you, Marie-José. So on the question of the Scope 3 reductions, clearly, we work a lot on it, as we are working on the Scope 1+2, otherwise, we will not be able to reach this very demanding targets. With regard to access to renewable raw material is really a key important point of Arkema and this is why also -- why we are developing the polyamide 11 capacities in the world, for example, but it's not the only initiative. As you know, I would say it depends, sometimes raw material are higher cost, sometimes it's not -- it's incremental. So you have different examples.

Clearly, there is not as available as foresees raw material by nature. But we find already many opportunities and normally, when we are using them and they are most expensive. We have enough pricing power to at least offset this cost of raw material. It's clear that the decarbonization as a cost on CapEx, as you know, but also on the raw material. So I think this is the case for everybody, but our feeling is that we have -- with our solutions, the pricing power, which is necessary in order to more than offset the input cost. What is most important today is before talking about the cost to get real opportunities. And I'm really proud and glad of what I'm seeing with the teams. There are really more and more new ideas coming.

And the last thing I would like to mention, which is important, the target we have on the Scope 1, 2 and 3, they have not just defined to define ambitious targets. They are really based on very specific actions, business unit by business unit. It can go from raw material use of energy, any other element working on the process and this is why we're investing on the CapEx EUR400 million, which is touching the Scope 1 and 2. So it's really defined at a very -- with a high granularity. And this is also the case for [indiscernible]. So to make the story short, from time to time, more cost and -- but we are comfortable to get it back on the value chain.

[Martin Roediger, Kepler Cheuvreux]

Thank you.

[Operator]

The next question is from Matthew Yates of Bank of America. Please go ahead.

[Matthew Yates, Bank of America]

Hey. Good morning. Two questions, please. One, perhaps short term, one more longer term. Let's do the short one first. The 20% volume decline in materials looks like something you perhaps would have seen at the depths of the financial crisis. I appreciate you've got a diverse portfolio going into lots of applications and markets, but can you just elaborate a little bit on why the volumes are so bad? And I think in your introductory comments, you did mention some impact of strikes in France. Is it possible to isolate perhaps what the impact of that was within the volumes?

And then the second question, more longer term is, I think it was this time last year, you announced a partnership with Nippon around making electrolyte salts. And I gather you've got a pilot plant now, but you are looking to potentially scale this up sort of mid-decade. Can you give us any sort of update on how it's going to validate this technology?

And if all goes to plan, when would you be looking to communicate some sort of CapEx and what sort of quantum do you think that could be for the company? Obviously, we've talked a lot about PVDF over the last couple of years and the opportunity for Arkema there, but how would you assess the potential opportunity in sorts? Thank you.

[Thierry Le Henaff, Chairman & CEO]

So as you mentioned -- Matthew, as you mentioned two different questions. On the first front, I would say strikes is incremental, but we would say in this kind of environment, even incremental could cost EBITDA. So this is why we mentioned it, but we did not mention it as a broad topic, but I think in our transparency, it was important to mention it. But I would say it's quite an incremental number inside the 20%. So I would not make it a big topic at your level. No, the 20% is mostly coming from destocking. This means that it's not reflecting the true GDP.

It's clear that it takes time and I agree that the numbers are big, not only for us, but for other peers, which are positioned in the same end market. And -- which my interpretation beyond the macro that you know -- as we know, is that after the COVID, after the tension on the raw material side, which happened in the first half last year and in the end of '21 and also on the transportation limitation, a lot of stock has been built along certain value chain. We still need to be digested. This is my explanation.

As you have a long history in this industry, that you have so long destocking. So you have to put that in the context of the post-COVID and also this element, which creates a suppletion disruption last year and the year before the last. And we are still to a certain extent being impacted with that on top of the macro, so we have the double paying.

Now, as you know, we have seen different situation in the past. We are -- we work on our self-help. We are patient. At the end, it will change. I think the good news is that if you look at the kind of EBITDA, we have been able to deliver with this low volume as the end is solid, but I agree with you. There is some frustration there because normally, you don't get hit by so little volume for such a long period. Now it will come back and maybe there will be in the second half, restocking that will also support delivering the result on the full year.

So you know me, we work on -- we don't compliant. We work and we believe that it will come back. We have just to be patient. We are not losing market share, it was also one of your questions. So it's really the end market. Maybe they have been helping us well in the past two years. So we have some counter back, but no specific answer beyond stopping and also macro, which is not overall supportive currently.

But -- so this is why we really work very strongly on the short term, mitigating the impact, but we continue to invest in the long run, which is part of your second question because we believe that at the end, it will come back and sustainability, at least for the one we are well positioned and Arkema is one of them will be really a key driver of growth for the coming years.

On your second question, I think Capital Market Day will be an important milestone in order to come back on different projects. So we'll certainly come back on this one and on the overall picture because as you can see, not only we have very interesting projects, major projects coming on right now that you are aware of, but also we are not sure of ideas on sustainability. And we want to give you the full picture for the Capital Market Day is one of the important elements.

On the process with this electrolyte salt, it has been validated fully. So it's quite an element of progress for Arkema. So now it's more fine-tuning the investment and we are still -- you know as the way kind of companies are working. You have different gate that you validate. We are still in the gate process and I would say, in an environment, which on finding materials, finding the engineering, et cetera, is a bit demanding.

So we want really to make sure to come with a fully validated project. And we're also working with our partner to fine-tune the different elements of our partnership. And so it will certainly take us up until the end of the year to give you rough estimate of calendar before we are more specific, but we'll give you more -- let's say, more information already at the Capital Markets.

[Matthew Yates, Bank of America]

Thanks, Thierry.

[Thierry Le Henaff, Chairman & CEO]

You’re welcome.

[Operator]

The next question is from Mubasher Chaudhry of Citi. Please go ahead.

[Mubasher Chaudhry, Citi]

Hi. Thank you for taking questions. Just two please. Just on the capital allocation, I mean, you're coming off a higher level of CapEx from last couple of years. Does that to do a little bit more on the bolt-on side of things? And while you're looking at the bolt-ons, is that a growing appetite for kind of a larger bolt-on kind of a mid-triple-digit sized M&A after the large acquisition that you've already done in adhesives? Just some thoughts there would be helpful.

And then secondly, on adhesives for 2023, how should we think about the margins for that business? I know the raw materials are coming off. I know there's some pricing that's linked to the raw materials as well, but just some comments around how we should be thinking about the margin for the full year and whether we get back to or even above the 2021 levels? Any comments on that would also be helpful. Thank you.

[Thierry Le Henaff, Chairman & CEO]

Okay. On the first one, with regard to capital allocation, it will be one of the topic of the Capital Markets Day. So I will not disclose it now. Their fair questions. It's clear that on sustainability, we have never seen as many interesting opportunities from organic, which we should be pleased about the best returns. And -- so we need to see where we put the bar and at which speed we want to -- let's say, to support all these ideas, which are really very exciting on new energies, bio, light weight material, on 3D, the list is nearly endless. So we need to confirm to you where -- what we see in organic.

And then with regard to bolt-on, I think we are comfortable with our current approach, which is normally two, three small bolt-ons in the year, which are not big. And from time-to-time, every couple of years, let's say, the average size one as we did Ashland, let's say 18 months ago as we did Den Braven, et cetera. So we are still in this period. So after that, we are pragmatic, opportunistic, but what is important for us is really to deliver our strategy and to make sure that the acquisition we are making are reinforcing our technology, let's say, footprint short term and long term.

With regard to adhesives for 2023, I would say you have two elements. You have the unit margin, which will improve with our pricing power and lower raw material, which even if the state elevated are a bit lower than they were. So my feeling is that unit margin will improve. Now a small question of volume. And on that, the visibility remains still limited, so we know more [indiscernible]. So for the percentage of EBITDA, it's a bit too early.

What is clear is that visibility and operation power in a disease unit margin, unfortunately, will improve to a certain degree this year. Now it's really the matter of volume between the H1, which will be weaker clearly. And the second one, which should show some rebound.

[Mubasher Chaudhry, Citi]

That’s helpful. Thankyou.

[Operator]

The next question is from Emmanuel Matot of ODDO. Please go ahead.

[Emmanuel Matot, ODDO]

Good morning, Thierry. Good morning, Marie-Jose. Three questions for me. First, could you give us more details about the first more positive signs in Asia you are mentioning in your press release this morning, which end markets are concerned? Is it both China and rest of Asia? Second, what explains the situation of temporary destocking in batteries in China? How long it will last? And third, have you had any feedback from the European authorities following your press release at the end of February on ? Are they considering your view that the proposed restriction by five state members is too broad? What are the next steps? Thank your very much.

[Thierry Le Henaff, Chairman & CEO]

So on the first one, for the time being, it's more, as I say, there are no clear signals in Asia. It's more a feeling that we have reached a sort of matter that discussing with the team, with the customers, I would say, the impression is that it should gradually improve, but I cannot tell you this. And even from months-to-months is volatile still. So it's more a general feeling that we share with you, but still don't forget that we were at a slow level beyond battery -- excluding battery last year.

So the base is -- so overall, Asia is still not the engine of the world. But compared to Europe, is clearly better light. And the feeling from -- our feeling sharing the team, the customer is that gradually, slightly we are in the nuances should be a bit more positive than what we see in Europe and the U.S. So we are there in this confirmation. But if your question is, do you see a clear sign of positive in a given market? The answer is no. So it's more a general feeling.

And as you could see, we remain on the current macro questions, as you are yourself. I think -- so -- but we wanted to share this feeling with you. Asia is not slowing down anymore. It's more stabilized and with some expectation of some slight gradual recovery. We are there, okay? But we'll update you as the quarter is developing. On the battery, I have no crystal ball. What is clear is that a little bit as I did to mature and post-COVID with this -- on top of this electrical wave, which will continue for many years, all along the chain from the auto stock to sub-supplier stock, et cetera.

Clearly, a lot of stock in China. Don't forget that China, so far, is the largest part of the world to make batteries. How long does it last? We don't know. We believe H1 is a good assumption, okay? So -- and in H1, it's temporary in nature. So we'll see, but for us, it's more a topic of H1, okay? Let say it this way, but the trend on battery [indiscernible]. We have no doubt about that. It will continue amplify. We are well positioned for that. But clearly, for the time being, we still destocking. Destocking is less now than it has been at the early start of the year. And we believe that one is a good assumption.

Okay. On the [indiscernible], I cannot give you any feedback or status. It's too early. I mean last time we talk about it, it was a couple of months. Discussion is just starting on a long process. So we believe that our arguments are valid. We are not the only one to push them. And we'll update you when we know more, but let's work on the topic.

[Emmanuel Matot, ODDO]

Thank you, Thierry.

[Operator]

The next question is from Alex Stewart from Barclays. Please go ahead.

[Alex Stewart, Barclays]

Hello. Thank you for taking my questions. Hopefully, very straightforward questions. The first one is whether you could quantify roughly the benefits on variable costs from the dramatic collapse in energy cost at the end of last year. I know you talked about it as being a support for Q2, but I assume that there was some benefit in Q1. And if there wasn't, perhaps, you could tell us why there wasn't? And then secondly, could you possibly give us a sense of what the synergy numbers are per quarter that you're able to get from Ashland already? So if I look at the first quarter of this year, what roughly should we assume for the synergies would be very helpful? Thank you.

[Thierry Le Henaff, Chairman & CEO]

So on the first one, we have not made -- we have the numbers inside, but we have not made any specific disclosure on that. So again, the overall picture with such lower volumes, I mean, it's really incremental. So it will not change. We'll see -- we'll take your question and we'll see if we want to disclose more and we need to see. But frankly speaking, the volume will be quite good.

We would -- we are in the new end compared to the impact of the volume on stock, certainly part of the net pricing clearly for -- but we have not disclosed any number. So we'll see maybe on the first semester, if you want to be more specific, but we don't disclose this quarter, but it not compared to the big element is really incremental. So it doesn't change the picture.

On the synergy number from Ashland, we are really fully in line with what we said. So the synergy for Ashland, all in all, were under about 10% of revenues on five years. So we are on the one year. So you take 2% of Ashland revenues that you apply to the quarter. So we have not made the math, but we are really on this trend where we cannot see IR to confirm to you more precisely but we are really on the plan now. So for us, it's the order of magnitude of its 2% of the revenues per year of Ashland revenue. So again, it will not change unfortunately. but at the level of the group, a bit like energy is really some of the bids for the time being, but we take that and ...

[Marie-Jose Donsion, CFO]

If I may. So Alex, if you remember, we had synergies related to cost since it is an acrylate-based technology that Ashland was using and on that front, I would say that is a very good progress on implementation of those synergies. So I would say they are now fully embedded in the road map of Ashland. On the second side, if you remember, we wanted to address the Asian market with the Ashland product. And because of the lockdown situation of China last year, clearly, on that side, this initiative is more delayed and we progress hopefully in 2023. So on that front, I would say this is today the missing part of the synergies that we have presented to you at the time of the acquisition that will come at a more later stage.

[Thierry Le Henaff, Chairman & CEO]

But if you take a straight line 2% of revenues per year based on what Marie-José said, I think we are -- we'll be -- we'll deliver exactly the plan. So with some elements, which are quicker -- for example, the acrylics since we have capacity because the volume are lower, we benefited from the synergy quicker than expected because we were tight last year. So it delayed the synergy last year, but this year, we have a synergy already, some elements are a bit linked to new business, takes a bit more time. But overall, we are really -- and all the synergy on finance, computer, everything, we went very fast on it because we prepared before the closing. So we're on the page. On the -- answered your second question. No other question, Alex?

[Alex Stewart, Barclays]

No. That was it. Thank you very much.

[Thierry Le Henaff, Chairman & CEO]

Okay. Thank you very much.

[Operator]

The next question is from Charlie Webb of Morgan Stanley. Please go ahead.

[Charles Webb]

Good morning, everyone. Thanks for taking the question. Maybe just digging a little bit more into the volume dynamics. Thierry, you noted you're not losing the market share. Given the weakness, given the low visibility, maybe you could just help us understand what gives you the certainty around that. And maybe just tied to that, clearly, obviously, price conversations must be quite tricky in this environment, with some deflation now out there.

How are those conversations progressing? And what does that leave us in terms of the volume set up for the second quarter. I hear you, obviously, second half weighting and expect more recovery then, but just any sense on how the volumes Q-on-Q kind of develop and apologies if I missed that?

[Thierry Le Henaff, Chairman & CEO]

Okay. Maybe on your second -- on your second question, again, it was not completed. On your second question, excuse me.

[Marie-Jose Donsion, CFO]

Volume outlook.

[Thierry Le Henaff, Chairman & CEO]

Okay. On the -- as we say on the volume outlook, more or less is on -- there is a clear continuity, as I said, with H1. Okay. The difference would be the seasonality, which is a bit higher. And so we'll benefit clearly from it. But is really this slight improvement of the seasonality. But beyond that, I think we are really -- so far, we had the continuity of the Q1 on the different end markets. We have less destock on the construction, for example, but we have a bit more destock on some industrial markets. So all in all, we are comparable. If it is your question like-for-like I would say -- and on the first question.

[Marie-Jose Donsion, CFO]

Volume dynamic going into Q2 relative to our guidance.

[Thierry Le Henaff, Chairman & CEO]

Yes, okay. But again, on your -- Charlie on your first...

[Charles Webb]

On market share. So just what gives you the compete...

[Thierry Le Henaff, Chairman & CEO]

I will ensure you are not losing market share. Okay. This is what I wanted to share with the team to make sure that -- no, I think we are checking with customer by customer, all the main customers, we are checking. We have a good view of what are our market share and we are very market share. We put a lot of emphasis on that to make sure and on certain customers, we have nearly 100% market share. So you see it easily if you're losing or not market share.

However, I would say, again, you cannot -- it's the same for our competitors and you are never sure for granted. But really, we make a lot of -- as you know, we are very unzoned, we are in the field, where the companies manage from the top to the, I would say, to the salespeople on the field, we have a very close connection. and also myself, we try to share discussion with big customers, et cetera.

So no, I think, so far, however we are confident we are not losing one. And if we need to adapt here and there, we'll do it. So no, I think is not scientific. You know, it's more about the quality of the dialogue with the customer or feeling is that it's not a matter of market share. It's really a matter of overall macro and of destocking, which is temporary, but which has been lasting for a certain period.

[Charles Webb]

So that's helpful. And then just maybe a really quick follow-up to that point. I mean do you feel that competitors are all behaving -- all very rationally in the same way on that point around everyone is kind of pushing in the same direction. Obviously, less so for the ones where you're a single supplier that maybe when you have a few peers also participating?

[Thierry Le Henaff, Chairman & CEO]

By definition, all competitors are behaving differently. They have all their strategies. As I was, it would be too easy. So I think we are in a world where everybody is concerned that volumes are low, but also everybody is concerned that the pricing is not making the difference. It's a regular. It's not a matter of pricing. So I think I would say the behavior is overall rather rationale. Now there are exceptions and each competitor has own strategy.

And if we need to react and adapt, we'll do it. It's not true only for competitor. I mean, it's true on the value chain. I think because you are following different companies more upstream, more downstream, I think yourself, you have a good sense of what is behaving on the whole value chain. Since the volumes are low, it's important that the value is getting protected is critical for everyone. And because of that, I think there is this awareness that especially in this high inflation world, to protect the margins. But again, it's not something which is scientific, but this is my feeling.

[Charles Webb]

Okay. That’s helpful. Thank you very much.

[Thierry Le Henaff, Chairman & CEO]

You’re welcome.

[Operator]

The next question is from Jaideep Pandya of On Field Investment Research. Please go ahead.

[Jaideep Pandya, On Field Investment Research]

Thank you. The first question is on Bostik. Sequentially, if you look at your sales in industrial category, they slightly went down Q4 versus Q1. So could you just tell us, Thierry, what you're seeing in industrial end markets within adhesives right now on a geographical basis in U.S., Europe and Asia? And the second question is really on PVDF. Apologies for asking this, but could you just tell us like fundamentally, if you have the technology to make suspension-grade PVDF.

And if so, you could actually compete at the highest end, if possible or is it that you guys have a genuine technological gap with one of your listed peers? And the third question really is on Nutrien. What is the update on this project? And the 40kt, is it enough for you to sort of make your fluoro chain green in the U.S.? Or would you need more volume if you had to do that at this moment? Thanks a lot.

[Thierry Le Henaff, Chairman & CEO]

Okay. On the -- I will start from the third and move up. So on Nutrien, yes, capacity is enough, okay? This is how it was designed. Now we get possibility in the long run to extend it if we need with our partners. So if necessary, we will do it. It was already, I would say, one of our thought, but it's not a short-term topic, okay? So for several years will be completely -- will get the volumes that we need. So don't worry about that.

And in terms of update, we are in the process of restarting. So we have been a bit late, but you know sometime in the U.S., things are in these days more complicated for CapEx, but we are starting -- progressively starting now also, okay? So it's growing after some delays now we are in the last phase as we are also -- I mentioned it for PVDF -- for polyamide even in Singapore.

With regard -- I don't want to enter too much in the detail of the PVDF, but I will make a couple of comments. First of all, PVDF, you have different technologies. Some are better for certain applications and some are better for other applications. So I don't think that there is only one by far. And even in batteries, for certain applications, suspension is better, for other emissions better.

With regard to Arkema, as everybody know now because it was communicated by one of our competitors, we are a company, which is -- which has been focused on the emission. And I think we are glad about it. We are very strong in that. Can we make suspension not now because of tools, we'll be able to make suspension in the midterm. The answer is yes. Do we have beyond what we are making today, evolution of our products, including emission, which will address the market in batteries for different applications, new generation, et cetera? The answer is yes.

Is PVDF sufficient to address the battery market? The answer is no. You need to have other technologies and other technologies? The answer is also yes. So I think we have plenty of cards to play. You have not one a company, which is positioned like the other was. This is the beauty of this incredible -- incredibly growing market. I think we have a position with some very strong strengths and some weaknesses the sale for our competitors, but we have really enough to be the fantastic story. So don't worry about that.

With regard to Bostik, yes, you're right to say that what has happened is that in construction, we have a bit less destocking. And in the industry, we have a bit more destocking. So you have a sort of swap with regard to the volume trend, which is overall negative between construction and industry temporary. So we need to check that. So overall, again, back to the question of Charlie, we are not losing market share. But clearly, we have some destock in the industry that we have not and we have less destock in construction. So for Bostik, overall is consistent quarter-by-quarter, but the mix of end market is different.

[Jaideep Pandya, On Field Investment Research]

Can I just ask one follow-up on the Nutrien side. There's a lot of chatter about forever chemicals in Europe. If you were to find an opportunity like Nutrien in Europe, would then that mean that your fluoro chain becomes green and therefore, you get out of this forever chemicals headache? Or that would still remain because the politicians, if I may say so, are being a bit naive by crafting everything into this forever chemicals basket?

[Thierry Le Henaff, Chairman & CEO]

I think, again, we have plenty of good ideas, but we cannot -- it's not a matter of politician or whatever or Europe, U.S. or Asia, it's a matter for Arkema and for our investors to make sure that we are prioritizing our investment based on the best return, including extra financial return. So it's based on our volumes, it's based on the competitiveness of the asset we can find.

With Nutrien, we have a fantastic project. Do we have such a fantastic opportunity in Europe, given the volume we have for the flouro chain, which are significantly lower than what we have in the U.S. based also on the partners that we could find? The answer is no. Does it make -- are we missing sort of big opportunity in the scale of Arkema worldwide? The answer is no.

We try really to focus on the best project we can find. So Nutrien is a fantastic one. It happens that it is in the U.S. on a given market. Polyamide 11 in Singapore is completely different. We have no such an opportunity anywhere else in Europe or in the U.S. So again, it's a sort of combination of strategy and opportunities and pragmatism where we try to find in the envelope of CapEx, which is not unlimited, what we believe as the best project for the company and for investors. So we will get in the near term or midterm, such a project as Nutrien in Europe? The answer is no, but not for a negative reason for good reasons, is my point.

[Operator]

The next question is from Chetan Udeshi of JPMorgan. Please go ahead.

[Chetan Udeshi, JPMorgan]

Yeah. Hi. Thanks for letting me on. Few questions. First, just on second quarter. I think you already talked about improvement from seasonality point of view. And I was just curious, the last time when we spoke, you were quite happy with Q1 consensus. I was just curious if you think you are happy with Q2 consensus that you -- at least I see on Bloomberg is like EUR440 million. I mean is that in the right ballpark, you would say?

The second question was just coming back to the ramp-up contribution in the second half. The volumes are quite tough in the materials business as we can see in Q1. So why do you think it is reasonable to assume that you'll be able to start up and ramp up all of your capacities, especially in Singapore, given the weaker volume environment that we see just now?

And the last question was nothing to preempt what you might say during the Capital Markets Day later this year, but I mean just given the step up in the CO2 reduction targets and also maybe focus on further growth in the battery value chain, -- should we be expecting the CapEx to go up from this year's level into next five years, six years substantially? Or it will remain within the current band of around EUR700 million or so per year?

[Thierry Le Henaff, Chairman & CEO]

Okay. Thank you for your question Udeshi. So on the last one, as you know, I mean, you gave me the answer, so I will take your answer with the Capital Markets Day in September. This is really toward this kind of discussion with you. So I would not say that we have to anticipate during this call. I think we have clearly and thank you for mentioning. We have plenty of opportunities. Now we need to arbitrate what we want to do, what is more -- is good to have plenty of things to do. We'll see where -- with the Board. It's not only a matter of executive committees, also the Board of Arkema.

We have strategic review midyear as every year. We take the time to review it and to see what we think is making more sense for our stakeholders and for the company. So we come back to -- that doesn't mean that I want to escape. We'll come back with a precise answer but on the Capital Markets Day because we are talking long term is really the place and so I think you will have to go to Paris. It's my conclusion on that. With regard to ramp-up of confirmation in H2, I think we are more positive than you are. This means that it's not a matter of end market for that of the macro.

I think the ramp-up we're talking about Nutrien, which is a cost among the project, let's say, the majority of the contribution will come from two projects. One is Nutrien, which is a cost issue, not end market issue. And the second one is biopolyamide granule, we are so tight. You cannot imagine. I mean, we have requests all the time that we have not been able to deliver in the past 10 years for bio product, and it is accelerating because of the sustainability.

So we are completely confident to deliver the ramp-up on this polyamide 11 in the second quarter. And now why in H1 we have not delivered? It's not because of the market or the macro is because we are delayed for technical reasons and no big technical reasons for polyamide 11. I think we are really just at -- it's a fantastic process, but complex process, and we just need to make sure that we validate every pieces of equipment, it takes time. But we are -- I mean, in the context of these five years investment construction with COVID in the middle, it's a six months late, it's nothing.

So we are very proud of that. And will -- I promise you will deliver the ramp-up of these two projects in the H2. But with regard to the discussion about the consensus quarter-by-quarter. I mean, I will make the story simple what everybody will love, and I'm not sure that we see where your Q2 consensus number is coming. So let make it simple. We have a guidance for the full year. You take the guidance for the full year. Then you have an H2 for obvious reason, which will be higher than H1. There are two obvious reasons or three maybe is the overall macro, even if you are not a fantastic optimistic, you can believe that the macro will be at least slightly better on the second half, you can believe that the destock outside of the macro, which has happened till in the first half, will at least for most of it, disappear.

And then you have this benefit of this major project we have just debated about. So you take an H2 above the H1, okay? Then you got H1. And this means that I know the Q2 consensus in mind, but the H1 consensus. When we discussed last time, I don't know if it was you that asked question about the consensus, but I say I was comfortable with the Q1 and the H1 consensus at that time and the H1 consensus was around 750, so which would mean Q2 slightly better than Q1.

For us, it's a good assumption. And if we do that for the H1 with what we see from H2 slightly better than the H1, we delivered the consensus for the year. So we confirm the consensus for the year and to deliver it. We need, and this is basically level of H1, which is at the level of the consensus that we debated last time when we had the same call in the first -- it was in end of Feb. Okay. Hopefully, I was clear and supportive in the answer.

[Chetan Udeshi, JPMorgan]

Very clear. Thank you.

[Thierry Le Henaff, Chairman & CEO]

Okay. Thank you very much.

[Operator]

The next question is from Andreas Heine of Stifel. Please go ahead.

[Andreas Heine, Stifel]

Yeah. Thank you for squeezing me in time. I have basically three questions, if I may. The first is on volume. I think it was last quarter that you used that with the calculation you do -- how you get to the volume inflation, which is basically the volume impact on last year's prices. Looking on the areas you have shown the strongest volume decline, which is the Advanced Materials and the Coating Solutions, there was quite some price impact in acrylic monomer and PVDF. I just wanted to check whether what we show there in volume, if you would not show this lets say in sales terms, but in kilograms and tonnes with that look differently. That's the first question.

[Marie-Jose Donsion, CFO]

Sorry to interrupt, actually, we are really difficulty to hear you. So I don't know if you are on speaker or something, but you sound very remote to us. So it's very difficult to hear. [Multiple Speakers] Please go ahead.

[Andreas Heine, Stifel]

Yes, it's better. Okay. It was on volume. So last quarter, you have elucidated that the volume is always the volume component is based on the volume change, but on last year's prices. As the prices have changed a lot in PVDF and in Coating solution, acrylic monomer. I just want to check whether the volume decline, you report in these two segments would be different if you would show it in kilograms and tonnes. That's the first question.

The second is, if you would net the start-up costs from the new projects and the profit contribution mainly in the second half, would that look materially different? So in other words, with the positive contribution be very minor only or would you still see a significant positive contribution?

And the last question is on adhesives with the construction end market being weaker than the industrial markets year-on-year. Is there a positive mix effect beyond the Ashland acquisition, which helps you on the margin. So these are my three questions. Sorry for being -- not easy to understand.

[Thierry Le Henaff, Chairman & CEO]

Okay. No. You’re welcome. So Marie-Jose, you will take the first two.

[Marie-Jose Donsion, CFO]

So on volume calculation, you are correct, the calculation is kind of impacted by the price evolution because volume effect is data volume times price of last year. So when you have a price, which is obviously moving a lot across the period, you have a bit of distorting effect when you look at the euro volume effect that is being calculated. So you are correct, probably volume is a bit amplified in terms of effect in our bridge due to this price effect, which is quite impactful.

So in fact, you would have a volume, which is delta volume times the price of last year, which was, obviously, very high and is reducing on both PVDF and acrylics. And price effect is delta price on current volume, which is obviously lower. So there is a kind of artificial amplification of the volume effect versus the price effect. So if we had reasoning on terms, I would probably be being reallocating roughly 3 percentage points from volume to price, so to speak, on those two very specific products that you are mentioning.

So on the second one, the new project startup costs are being reported, so specifically, we are talking about Polyamide 11 plant in Singapore. So since this point in this CapEx is classified as an exceptional CapEx, as we discussed in Q4, we therefore report the start-up costs in nonrecurring. So I mentioned, actually, when I commented on the nonrecurring cost for the period, we have basically a bit more than EUR10 million being reported in start-up cost for the quarter for the start. And probably you should expect something quite similar in Q2 with a start of contribution of depreciation and of contribution of the asset that, as I mentioned earlier, should start in the second half of the year.

[Thierry Le Henaff, Chairman & CEO]

Okay. And thank you, Marie-Jose. And next question with regard to Adhesives. Again, so construction was very weak last year in the second part of last year, certainly Q4, is still weak, but let's see the weakness, a bit stronger, while industrial, which were more resilient, as I mentioned before, has more destocking. So globally, construction is still weaker than industrial. There is no doubt about it. But I would say a little bit mitigation between the balance of the two construction and industrial volume. And I would say, does it make the mix -- I imagine it's on the EBITDA margin on your question. I would say no.

I think we meant the same kind overall. We made quite close profitability level on the construction and on the industry for Arkema. Clearly, with the ramp-up of -- I come back to the question of Ashland Adhesive and contribution of Ashland. With Ashland in the coming years and all these developments we have in the industry with engineering adhesive, high-value, high-performance, hot life for industry, et cetera, based on megatrends. Normally in the long run, we should be a bit more profitable in the industry than in construction, but it's incremental. It's not a big topic and certainly not a big topic on the quarter.

[Andreas Heine, Stifel]

Thanks a lot.

[Thierry Le Henaff, Chairman & CEO]

You’re welcome.

[Operator]

Ladies and gentlemen, there are no more questions registered at this time.

[Thierry Le Henaff, Chairman & CEO]

Okay. So thank you. I would like if there are no more questions, I think we do the time to answer all yours. And thank you for your attention and your good questions. And if anything specific, certainly the IR team is open to exchange with you during the afternoon. Thank you very much.

[Operator]

Ladies and gentlemen, this concludes this conference call. Arkema, thanks you for your participation. You may now disconnect.