Arkema SA

PAR:AKE

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, welcome to the Arkema's Half Year Results Conference Call. I will now hand over to Marie-José Donsion, CFO. Madam, please go ahead.

[Marie-José Donsion, CFO]

Good morning, everyone. Welcome to the webcast conference. I'm actually together with Thierry, so I'll actually hand over to Theirry for the call.

[Thierry Le Henaff, Chairman & CEO]

Thank you, Jose, for this introduction. Good morning, everyone. Welcome to Arkema Q2 2022 Results Conference Call. So with me today is Marie-José, as you could see and also Beatrice and Peter from Investor Relations team. As usual, to support this conference call, we have proceeded the presentation on our website, which details our second quarter performance and revised outlook. I will now comment the highlights of the quarter before letting Marie-Jose go through the financials in more detail. And as always, we will answer your questions at the end of the call.

So in Q2, we clearly delivered an excellent set of results. Actually, this was a record quarter in many respects. The numbers were ahead of our forecast, and well above market expectation. This financial performance is really an element of pride for our teams.

All the more, the operating environment remains challenging and demanding with many disruptions. As a matter of fact, the high inflation, the Ukraine conflict leading to security of gas supply and supply chain disruptions as well as volatile conditions in China due to the pandemic and lockdown, all represent great challenges for our teams.

As for our peers and many companies, our performance integrates the tightness on a few of our product lines. But above all, reflects the relevant and the right execution of our strategy on Specialty Materials. Our balanced geographic footprint, our differentiation as well as the strength of our innovation and our technology to help our customers develop and provide sustainable solutions.

Specifically, I would mention the following key points of the second quarter. First, Arkema's EBITDA rose by nearly 50% to EUR705 million, breaching the quarterly EUR700 million mark for the first time, and the EBITDA margin improved by over 200 basis points to 22.1%. This excellent performance was, in particular, driven by firstly pricing power in all businesses to offset notably the continued and extraordinary inflationary trends in raw materials, energy, and transportation cost.

Secondly, the evolving product mix towards high value-added applications in lightweighting, clean mobility, 3D printing and electronics reflecting our strategy of innovative materials for a sustainable world and our unique positioning. Third, our balanced geographical exposure, which allows us to mitigate the underperformance of 1 region and take advantage of our strong presence in other regions. And the benefit from the tightness, which we mentioned before, partly sustained by this context of supply chain disruptions.

This quarter, we really see the importance of having a balanced geographic footprint and diversified end markets. Europe slowdown impacted in particular by construction, which has an end market in this region represents around 10% of total group sales as the automotive market remained affected by component shortages, but the overall dynamics stay strong in the U.S. and resilient in Asia.

Besides the diversity of our end market should hold us in good stead in the second half with growth in areas such as sports, oil and gas, new energies, 3D printing electronics, for example. It's really this combination of high value-added solutions across all those end markets that have made the company robust in the different market condition, which we have experienced in the past several years.

Furthermore, each of our -- four segments contributed very positively in Q2. Bostik achieved its first ever triple-digit million euro EBITDA in the quarter. We are very pleased about it, supported by Ashland's excellent contribution and its ability to maneuver in a challenging environment marked by continued raw material shortages and the slowdown in Europe PN construction and. Advanced Materials particularly benefited from our exposure to megatrends and best-in-class innovation in high-performance polymers. Performance Adhesives delivered a solid performance with a pricing effect of close to 30%.

In Coating Solutions, while conditions in upstream acres, which represent around 1/3 of segment sales remained favorable. The pricing effect was virtually the same in the downstream and the upstream demonstrating our pricing power as the benefit of our innovation in megatrends and attractive niches. And in intermediates, we benefited from good market conditions in refrigerant gases in the U.S. and a good resilience in China despite the lockdowns.

Q2 results confirmed that Arkema is benefiting from its unique positioning in specialty materials, which make up 90% of group sales. There are many examples of our drug to develop high-performance and innovative solution, but I will focus on some specific opportunities in clean mobility where we have exciting initiatives to support future technologies.

We recently announced a joint venture with Nippon Shokubai, a long-lasting partner to accelerate the development of new electrolyte formulations for the next generation of batteries with the aim of significantly increasing battery power, stability, cycle life and recyclability. This project is completely in line with our chemo strategy to leverage its technical expertise and develop tomorrow solutions to accelerate the decarbonization of our economy.

There are many other similar projects across our specialty material platform, working closely with our customers in 3D printing or electronics, for example, to further our innovation not to mention new business development in lightweighting sports and automotive.

This will enable Arkema to stay at the forefront of industry development in megatrends. Our strategy of sustainable growth is therefore clearly paying off and gaining traction. On the M&A front, we are happy to have announced last week the bolt-on acquisition of polymers specialists a leading player in solvent III waterborne resins in Mexico, reinforcing the downstream of our North American Coatings segment.

Meanwhile, the integration of recent acquisition in Raisin -- is going very well. Our rich pipeline of high-return organic CapEx project is progressing nicely with PVDF expansion in China and France towards -- in the U.S., Sartomer in China -- in France, all starting in the next 18 months and which will strengthen our sustainable growth profile in attractive markets.

We will also soon be starting our 2 exceptional CapEx projects focused on decarbonization, namely our polymer biofactory in Singapore energy, HF acid plant in the U.S. On this important subject earlier this month, Arkema unveiled a new ambitious climate plant, aligned with the 1.5-degree trajectory and using a science-based target approach to reduce emission spanning scope one, two and three by 46% by 2030 relative to 2019. It clearly places Arkema among the most ambitious company within the industrial sector and positions us well to bring our contribution to the key challenge of global warming.

This climate plan complements our broader corporate social responsibility initiatives, including our impacts target to increase the share of our solutions that contribute to the U.S. sustainable development goals. Our circular economy initiatives as well as efforts to improve safety and diversity in the workplace. I will comment on the outlook at the end of the call, so I will now hand it over to Marie-Jose

[Marie-José Donsion, CFO]

Thank you, Thierry. So I'll start with the sales bridge. So at the EUR3.2 billion sales of 23% in organic terms, price effect at over 28% is the main driver reflecting increased prices in the face of the very strong inflation as well as good conditions in the acrylic cycle globally.

Group volumes were down 5% compared to last year's elevated levels, impacted by logistics disruptions, China lockdowns and the slowdown in European construction, while our volumes grew in the U.S. where demand remains well oriented in most end markets. The currency effect is a positive 8% driven by a stronger U.S. dollar and a Chinese run versus the euro. The scope effect is also positive plus 1.6%, mainly linked to the integration of Ashland, business, partly offset by the residual impact of the disposal of PMMA in May last year.

Quarter 2 EBITDA came in at EUR705 million, with solid growth across all segments. Bostik's EBITDA is up 5% at EUR111 million. We benefited from the integration of the Ashland Adhesives business, which added around EUR20 million profit -- this quarter, our -- reflects our strong discipline to implement price increases towards cost inflation as well as the better mix. The EBITDA margin was stable at 14.2% despite the mechanically dilutive impact of price increases on the ratio. Advanced Materials EBITDA grew over 50% year-on-year to EUR282 million with an elevated EBITDA margin of 25.3%.

High-performance polymers continued their strong innovation-led momentum, still benefiting from tight conditions in various product lines -- Performance Adhesives also performed well, demonstrating solid pricing power in this environment.

Coating Solutions EBITDA rose over 30% year-on-year to EUR207 million, with an EBITDA margin at 21.6%. Market conditions for -- which represent around 1/3 of the segment sales continue to be favorable. We benefited from product mix improvement towards higher value added and more eco-friendly products in the downstream -- resins performed particularly where the markets like electronics, new energies and 3D printing.

Finally, Intermediates EBITDA grew 59%, thanks to the improved performance of refrigerant gases, especially in the U.S. and also thanks to the tightness of Acrylics in Asia. Recurring EBIT came to EUR570 million, up 65% relative to last year. EBIT margin stood at the level of 17.9% versus 14.4% in Q2 2021.

Nonrecurring items amount to EUR56 million and include EUR21 million of purchase accounting, depreciation and amortization relating to -- acquisitions. As well as EUR35 million of one-off charges, restructuring and legal expenses.

Financial result stands at EUR6 million. It's actually much lower than last year as a result of actual gains from long service awards, which is actually linked to the increase of interest rates. At EUR106 million, the tax charge is all of last year level, which at the time included the tax and tax gains on PMMA divestment. Excluding exceptional items, the tax rate guidance for the year remains at 21% of recurring EBIT. So no change there.

Consequently, quarter 2 adjusted net income was only EUR443 million, which corresponds to EUR6 per share. Moving on to cash flow and net debt. You see Q2 recurring cash flow amounts to EUR235 million, so broadly in line with last year's figures.

This reflects our strong operating performance partly offset by an increase in working capital linked to higher raw material and selling prices as well as the usual seasonality in the first half. The working capital ratio on annualized sales stands at 14.9% versus 11.9% last year, which was marked by the post COVID rebound and sourcing difficulties.

Total capital expenditure amounts to EUR125 million this quarter. This reflects lower exceptional CapEx of EUR26 million versus EUR64 million last year. The 2 major projects that we have in exceptional basically come into a completion stage. Net debt at the end of June 22, therefore amounts to EUR2.8 million including EUR700 million of hybrid bonds, which is broadly stable relative to Q1 level. The net debt to last 12-month EBITDA ratio stands at 1.3x, and that's about it. Thank you for your attention, and I hand it over to Thierry.

[Thierry Le Henaff, Chairman & CEO]

Thank you, Jose. So again, we certainly appreciate the quality of the first half financial performance. The year-on-year growth is all the more noteworthy that our first half 2021 EBITDA had grown considerably relative to 2019, which was the last reference point before COVID. Going forward, the teams are fully prepared, if needed, to manage a different working environment in the second half.

I'm sure everyone on this call is up-to-date with the current uncertain macroeconomic climate. I will not detail it again. The question, and there is no clear and unanimous answer is what the environment will be like in the second half? .

Certainly, the next period will be different from the previous 1, different but different scenarios still remain on the table. So to be honest, this is what we experienced in 2019, 2021 or '22 -- no year is like one, I would even say every semester is different.

In this context, we remain particularly attentive to market conditions, but we will above all focus on what we do best, which is to execute our strategy, reinforce our sales include being strictly managing inventory, fixed costs, BGI, proactive, manage selling prices to adapt to the inflation context and continue to prove that whatever the context we deliver solid results, solid cash aim to outperform our peers as we have done in the past two years.

In this context, while remaining cautious on the development of the environment, Arkema shows its confidence by raising again its annual target and now aims to achieve in 2022, excluding significant disruptions, annual EBITDA growth at constant scope of 17% to 22% compared with 2021. This would mean an EBITDA for the year of around EUR2.1 billion. At constant cost is EBITDA would thus be somewhere midway between the 2 base second half achieved by the group so far in 2019 and 2021, highlighting the resilience of the company.

Lastly, and this is important, we are well on track to achieve our ambitious 2024 target. We'll continue to implement our strategic road map to become a pure specialty materials player. We have seen that this strategy was really paying off leveraging our bolt-on M&A policy, industrial capacity expansions with high return -- as the strength of our innovation for sustainable development, we should enable the company to generate EUR1.5 billion of new revenues from '19 to 2030 around our five large R&D platforms. So I thank you very much for your attention. We try to be rather short, but up to the point, and we are now, together with Marie-Jose, ready to answer your questions.

[Operator]

[Operator Instructions] First question from Emmanuel Matot from ODDO BHF.

[Emmanuel Matot, ODDO BHF]

Thierry and Marie Jose and first, congrats for your impressive first half. Now if I'm looking at your guidance for 2022 your EBITDA guidance, it implies a decline in H2, meaning a disruption compared which was fast growing?

I know you used to be cautious, but have you seen the situation deteriorate significantly over the last few weeks. Could you notably give us an idea about how was the month of July? Second, could you remind us to what level Arkema is exposed to energy and what will happen to the company in case of significant discontinuities related to the supply of natural gas in Europe, are you working on a plan to reduce your exposure to natural gas?

And third, what was your pricing power -- do you feel comfortable to further pass on inflation to your customers after several significant price increases and at the time, demand may slow down.

[Thierry Le Henaff, Chairman & CEO]

Emmanuel, so thank you for your question and for your congratulations. I think all your questions are quite really that by definition. So first of all. Again, we -- it's important to appreciate the moment. I think the first semester was really very strong, and it shows that in a given environment, Arkema is really delivering compared to other industrial company, chemical company, very strong result. We appreciate and our team is really reflects the quality of the execution of the strategy. .

Secondly, not only Arkema, but for plenty of other companies because of the tightness of the condition, H1 was compared to the normal course of the business was somewhat exceptional. So when you look H2 versus H1, you need to take that in account, H2 that we -- and you should not forget that the H2 last year was compared to '19, a very significant progression certainly far beyond the average of the peers.

So once said that, I would say that our guidance for the second semester is placed midway between the last two record semesters of the company, so which means it's quite a very solid guidance. I read the analysis and which are published here and there with regard to the macroeconomics and the -- most of them are bearish.

I think that in this context that many -- most of the experts are announcing the quality and the solidness of the guidance shows on the contrary, quite confident on our side, but you have also to take into account in a realistic way, the context.

So I would say, solid guidance after super first 1 result, midway between the last two record semester, but in a context, which is certainly not as strong as it was in the first semester. So now what is changing -- there is no like a 2-week disruption or something is sort of continuity, but that you see as we see Arkema is not a knowledge that you don't have even yourself, what we see is that the U.S. so far is still solid, that Asia, despite lockdown in China, let's say, neutral plus in terms of growth.

I think we still are able to deliver a slight growth, but close to 0, but slightly positive, but in Europe. So is that destocking? Is that this uncertainty about the gas? Is that the inflation, is that the war in Ukraine, but it's clear that Europe is construction, automotive, but not necessarily only is slowing down. So we see that in our numbers. So it's certainly a difference between the average of the H1. But again, despite all that, we believe that the case then we have communicated to you today is an encouraging cadence.

Don't forget that we -- our previous guidance for the year was slightly above the previous year. And now we move to -- for the EBITDA to 17% to 22%. So it's a material increase in the guidance despite that the fact that the view of the expert on the environment is itself getting in the opposite direction. So we should all be pleased about it and wellbeing realistic.

With regard to the gas, so nobody knows exactly what is going to happen on the gas. You know that in Europe, it's a big matter each state trying to understand what they have to do with -- between the states. So with regard to Arkema, even if we are not big buyer of gas, but even a small buyer given the increase of the cost of the gas, it makes a material increase in terms of cost -- but -- and even a site which is not using a lot of gas can be partially reduced because he has not the whole gas in it. So we are looking at that in detail. We are making a different backup plan, et cetera. You cannot change the way you use your energy today.

You are not going to move to -- if you don't have it or to move to electricity, if you don't have it. And again, the truth of today is not necessarily the truth of tomorrow. So we have -- we should be careful not extrapolating the currency duration for the next 10 years.

So what we do is that we really -- because we have strong experts in the company, we try to see, depending on the scenario, what we should do to mitigate. But I would say all chemical companies are doing that. So after that, I think we have, in terms of track record, a good track record to be agile and a fine solution for what is in front of us. But clearly, for Europe, the energy -- and it's not only the gas is also the electricity because it goes together to a certain extent is certainly an important matter for the next 2 semesters.

On the pricing power, I think we have done well. It was -- I remember, it was a big question for all of you when we started the year. And even last year, is Arkema going to be able to show pricing power, et cetera, etcetera. And I think we have proven our ability.

So now the raw material cost, some are increasing, some are decreasing, but overall, we are more at -- so I think it's -- now the question is different. I think we have a context which is the same for everyone. We have a strong position in as we demonstrated and we are confident in our ability to at least offset the raw material cost as we have been doing in the past semesters.

[Operator]

Next question from Laurent Favre from BNP Paribas.

[Laurent Favre, BNP Paribas]

I've got 2 questions on HPP, please. The first 1 is, can you remind us, roughly speaking, how much of HPP goes in autos globally? And the second question is regarding, I guess, pricing of the different polymers. So we've got new capacity coming from you on polymer from one of your peers on polymer 12 another peer on PVDF, very significant additions in the three cases.

If there's no significant reduction in demand from here. Basically, what do you think can happen to pricing in roughly speaking, in those 3 polymers? And how quickly would you expect prices to normalize given those supply additions?

[Thierry Le Henaff, Chairman & CEO]

As you know, we communicate more on the group, which is 5%, 6% of the group sales for HPP is double digit, but more in the is low tens a little bit viable if you exclude batteries. So more on the traditional auto, then batteries will increase it, but it's a different dynamic, I would say.

Okay. So certainly, auto is declining for HPP segment. But in fact, since we are limited in terms of capacity today, it does not impact Arkema. What we are doing, and it's important for your second question, and since now many years is that really working on high-value product differentiated acquisition because we know that this kind of high-performance polymer, you can have some additional capacity.

It's important to continue to be positioned on the high end of the range and to different yourself to protect your pricing power. Now once said that, -- we have enjoyed as many high-performance polymer, a very strong period recently, a little bit atypical in the H1, and there will be certainly, in the battery segment, more availability because it took some time for all suppliers to adapt to the strong and exponential growth of the market.

So it will weigh by definition of this pricing, but we'll stay with good pricing, but not as high as it has been in the past. With regard to Polymer as I've, I think, answered many times, we are the market. So we'll make sure that the ramp-up is that the speed, which is necessary. And I think we have been really for us a factor of any one site, if some have a turnaround or a technical issue, it's a challenge for the company.

So the fact we have the second site will really help in terms of operation, in terms of working capital, in terms of profitability, even if we decide to have a ramp up, which is really on the 5 or 6 years.

But we will make sure that the ramp-up is in the 1 which is needed in order to protect the pricing power. With regard to PH1, it's a little bit different because we are more players, you have 2 players, which are expanding. So there will be some pressure on the pricing. But again, it's in general terms, it's part of our strategy to focus on the differentiated products. Now compared to H1, it's clear that you will have a pricing, which will be less strong as it has been in the past, but H1 was again a typical.

[Operator]

And next question from Matthew Yates from Bank of America.

[Matthew Yates, Bank of America]

It's Matthew. A couple of questions really about mix. Arkema has been changing a lot over time through its M&A and R&D efforts. And there's obviously a temptation to look at these numbers and 30% price increases is just reflecting temporary market tightness.

So firstly, on Adhesives. Apologies if I'm maths wrong, but if we strip out acquisitions, it looks like your volumes are roughly back to 2019 levels. I know you've been putting a lot of effort to developing new adhesive products. How would you expect that to show itself through the numbers going forward? Should we see an acceleration in volumes at some point?

Or is it more about the mix and margin trajectory of the business and getting closer towards your midterm targets? And then the other question about mix, maybe just a follow-on to what Laurent was asking about materials, where you are running above your loan targets here. And your introductory remarks mentioned several new high-return projects that will be ramping up over the year or so.

Would you be confident enough to say you've got some upside to those midterm margin targets as these capacities come online? Or was your answer to Laurent about a typical pricing essentially a recognition that current margins will be hard to sustain?

[Thierry Le Henaff, Chairman & CEO]

Okay. Thank you very much for your question, Matthew. On the -- so on the first question with regard to the as the strategy of -- will continue to be a combination of organic growth and evolution of the mix. And you are right to say that in the past, we have sometimes arbitrate being arbitrating against volume in order to focus more on high-margin products. So because of that, you had a fair increase of the profitability of Bostik. But on the other hand, you had organic volumes that you could consider to be a bit disappointing. .

Going forward, the idea is really to deliver GDP in Adhesives. There is no doubt about that. This is our strategy, but at the same time, to continue to have an evolution of the mix, which is favorable. Normally, what we target in the mix is something structural. It's not something you build on 1 year, you build it on several years.

And with the addition of all the efforts quarter-by-quarter and year-by-year, you can make a difference on the long run. Normally, if we are able to add 1 point of mix, 1% of revenues every year coming from the mix, it would be quite a good result. And to add to that, our ability to grow as the GDP. So this is what we have in mind.

With regard -- maybe I can make a comment on the margin for Bostik. You can get impression that in percentage are a little bit low, but in fact, they are quite resilient because there is a dilutive impact linked to the high raw materials, we have increased price in Bostik by more than 15%. So for the same value, you have less margin.

But I would say it's a reserve because at a certain point, raw material we normalize, it's really a reserve of EBITDA margin for the coming year. So I think Bostik really delivers by step, even if it takes years is a strategy and would be really a superb component of Arkema in the coming years.

I would like to add to that, that Ashland is really getting integrated very well. With regard to the advanced material, I think the midterm target appear a little bit conservative. And I think they are a bit conservative, so we should do a little bit more, not as today, but a little bit more as we have at least incrementally more than what we have announced. We see for me, 24 now is tomorrow.

And I think everybody is, I think aware that we are really on a very good track for '24. So the question will be at the next Capital Markets Day to think of which kind of margin we could deliver for '26, '27. So the next step of Arkema because we'll continue to grow up in order to be along the best peers in terms of profitability.

So no, I think we are really on good track, but you have to make a difference between what is more let's say, linked to the tightness of the first of the last 2 semesters and what is more structural. But on a structural way, we are really doing a good job. This is our feeling.

[Operator]

Next question is from Rob Hales from Morningstar.

[Rob Hales, Morningstar]

Two questions. first, just on the M&A environment. Can you talk about the current state of the M&A environment. Are companies more willing to sell now? Is the bidding environment less competitive maybe -- and then just on the Q2 results and your introductory remarks, you mentioned that they were well above your internal forecast. So I'm just wondering what was the biggest surprise for you were you surprised that the size of the price increases you were able to push through.

[Thierry Le Henaff, Chairman & CEO]

So with regard to the M&A environment, I think it was softened, which mean in the sense that normally multiples will decrease a little bit, I think, in the coming months. It's a little bit too early so far. But if the market overall is getting softer.

We should -- the access to money is getting more difficult, especially for our private equity, I think it should have an impact on the multiple. So you have seen that recently, we have made a small acquisition. It was a small one for cutting solution actually the first one since a long time. But I think they deserve it with the quality of the results.

I think that we'll continue to make a small bolt-on and to target high quality. And so because of that, we stay with multiple, which are not small, but the market should be more favorable for the buyer in the coming months, is my feeling.

So the seen time if we have good opportunity to try to get them but not feline -- to make any significant move in the coming months. With regard to the results, I think first of all, Asia was a bit better than expected because we saw that because of the lockdown, we could have the risk to have a negative growth in Asia.

It has not been the case. Maybe is due to our positioning. So we benefit from it. We also benefited from our positioning regarding the FX. We are very strong in the U.S. and in China. And it was a result of our strategy, but we -- Europe was weak. So the euro went weaker, but we benefited from a strong FX also so it helped it was certainly supporting factor. We had good news in terms of megatrend development from innovation. We were quicker than expected.

So we are some very strong momentum for new business development that will benefit from it. So I would say, compare to our initial forecast. It was not 1 element. I would say that most of the elements were green at the same time. So -- and because of that, we deliver this super performance.

[Operator]

Next question from Jaideep Pandya from On Field Research.

[Jaideep Pandya, On Field Research]

A few questions. Firstly, if I -- Thierry, if you talk about PVDF, and I don't want to talk about pricing, but technology, there is a theory in China that companies are working on reducing PVDF intensity in the battery in the outer years with blending it with other materials like polyacrylic acid, for instance, are you guys working on similar solutions for the next-generation PVDF binders for the cathode binders? That's my first question.

The second question is really sorry to focus on Q2 now, but -- if you look at the HPP sales sequentially, they are relatively stable. So -- and I'm assuming now that additives must have had a good result given the ethylene oxide chain is doing very well. So was there anything holding you back? Or are you just sold out and therefore, it's difficult to grow until your sort of next capacities come in? That's my second question.

And then the third question really is around Ashland -- could you just remind us, has Ashland suffered big from margins because of very strong acrylic acid price increases. And therefore, there's a huge opportunity for Arkema to see margin improvement in Ashland, A, because you're backward integrated and b, because acrylic acid prices are normalizing now. .

[Thierry Le Henaff, Chairman & CEO]

Okay. Thank you, Theirry. -- on your question. So first of all, on batteries, and I know there are a lot of notes on the battery market and use all the time, and it will continue. So it's for me, the start of the journey. This means that even it's now material for Arkema's contributor, we consider that the picture in 2030 will be very different from the one today.

So which means that technology will evolve by definition of the battery of the material for battery and you need to be at the forefront. So I don't want to disclose any technology development of Arkema. It's not my -- I will not do it for obvious reasons. But clearly, I think we are increasing every quarter our teams in order to unset the future challenges, what is happening on the market.

We are confident in our positioning on our technology. We are multi-technology, as you know. So -- but we don't want to comment more. So there will be many stories. And you have seen ourselves also, for example, recently announcing the joint venture with Nippon Shokubai Electronic where not necessarily are people are expecting us, which means that we are really moving with great speed on that. And -- you know that the EUR1.5 billion of new development that we have announced for 2013 versus 2019. battery is at least 50% of it.

So -- which means that we not do it only with the technology of today and we are working on different things. So we are attentive to what is happening in China by definition. But ourselves, we are also a Chinese player. So it's a very interesting, very dynamic. There are challenges there are opportunities. Nothing is granted. It's the beauty of the world of today is that you cannot just rate yourself on what you have been doing. But we are working, I continue with a high motivation and speed and a strong technology breadth.

With regard to HPP sales, No. This year, we have no volume available. We have not added any capacity and all our capacity were tight. So the new capacity which are coming for HPP are twofold. You will get for PVDF, new reactors in China and in France. And for polymer as you know, we have the Singapore plant. So it would give us post of finally starting our organic growth again.

But we have been a little bit victim of our strong new business development over the past years, and we have been sold out this year. So we work more on the mix, but next year, we'll start to grow again in terms of volume. With regard to Ashland, first of all, they have done a good job in terms of in terms of pricing and since they have been embarked inside the company, in our company is something that we follow very strictly, and they have played the game.

So I think they are a part they are a path between the raw material increase they got and the pricing they have passed, the new pricing they have passed. So we are pleased about it. Overall, the profitability of Ashland and mostly in the U.S., as you know, has been really in line with the business plan, which was quite demanding. So we are also pleased about it.

With regard to the -- assets, thank you for mentioning that towards the bare integration on Acrylic can be a positive, but clearly, on the pressures and support is part of the equity story. And will benefit at double level for the Coating Solutions segment, which would be the -- or is now the supplier of Ashland and for Ashland is certainly 1 elegant, which will be -- will help us to accelerate in this pressure-sensitive adhesive business that we bought from a shale.

[Jaideep Pandya, On Field Research]

And well done to Marie Jose on great free cash flow as well.

[Operator]

Next question from Mubesher Chaudhry from Citi.

[Mubesher Chaudhry, Citi]

Just a couple, please. There's a strong uplift in the intermediates. Are you able to help us understand how much of that is coming from fluorogases in terms of pricing, just trying to disaggregate the performance there a little bit. I'm trying to understand if that carries on for the rest of the year. And the second question is around the Coating Solutions volumes. It was slightly negative in the second quarter.

I think some of your customers are talking about significant destocking across the supply chain. So have you seen any early indications of that, either in June or July, where the volumes within Coating Solutions is starting to taper off. Any comments around the demand picture there would be helpful.

[Thierry Le Henaff, Chairman & CEO]

So I’ll start with the second question. Yes, in Europe, we've got destocking in the paint business. So we know that. We know that. I think they have managed well on the Coating Solutions segment. When you look at the profitability in the second quarter, which means that we have strong positioning, high-value application and that between the -- we have also a good diversification, good diversification of the application.

It's not anymore mostly paint is also electronic. It's also industrial coatings is also 3D, et cetera, et cetera. So this means that, in fact, we have offset the negative volume by some high-value applications that we are developing.

But yes, you're right. We got less volume because of the European performance, which has been affected by destocking. And overall, the Europe macroeconomics, so nothing to see with Arkema is something is clear. I'm sure you hear that from other companies. We are not in an isolated in our world. So you should hear it from other guys.

With regard to pricing, sorry. So we do not, as you know, detail on pricing between acrylic and fluorogases gases, but they both contributed positively to the price in Q2. In Q2, clearly, as you -- maybe you mentioned, of course, flurogases benefit from the positive seasonality. And so Q2 is areas the better quarter for fluorogases and because the distributors are stocking for the semester and the second semester is normally a weaker one.

Even significantly weaker in the last quarter, a little bit weaker in the Q3. And this is why in Q2, Fluorogas really was very bright. And we're also happy to see that fluorogas gas for structural reasons, is getting better results and they seem to go well and we appreciate. We don't need it more than that, but we have it, so we appreciate

[Operator]

Our next question from Ken Chen from JPMorgan.

[Ken Chen, JPMorgan]

So just a follow up on the volume question. So particularly, I want to check, given your high pose construction end market, do you see any demand volume coming off in that end market? So that's my first question. And second, I just wanted to see your plan on your CapEx spending, especially given the current macro environment. Do you have any change in plan in how you want to spend your CapEx for the remainder of the year or going forward. .

[Thierry Le Henaff, Chairman & CEO]

So on the first question I would like first to mention because I read a few notes from analyst and our exposure to construction, I would like to restate the truth. When we say that the construction market is weaker at least for what we see is Europe is not the rest of the world.

So which means that it's around 10% of the group sales. And actually, we are also a diversified company. So this means we have construction, but not more than what is represented in the GDP. So we refined the GDP overall, but we have plenty of other market -- some of them are still very supportive. So it was important to remind you of that because sometimes we will not were suddenly Arkema becomes a construction company is not at all the case.

We have always communicated on the fact that we were diversified on the end market and that our new business development between our growth were supported by the mega trend, which means these businesses where the growth were superior to their underlying growth because of some extraordinary opportunities coming from this megatrend.

So it's important to note that. So have in mind the construction, which is today weaker in for Arkema is a European construction and is 10% of sales. One say that, currently, this week the stock and -- but it's an element among those.

With regard to the CapEx plan, I think we'll be in continuity. In fact, Arkema is never a company which with CapEx adapt with vitality. This means that when the times are very good, we stay on what we say. We don't do more. And when the macroeconomy is, let's say, more challenging.

We try to stay with what we said. And it has always been a differentiated and positive factor for Arkema, which means that stand the macro has accelerated, we have been able to come with the right CapEx and accelerate the profitability of the company, and this is why we are so profitable today, because of our, I think, relevant CapEx strategy.

So now with regard to CapEx, we communicated on the fact that we had a 5.5% recurring CapEx and so far. And we say we started to announce. I can confirm it today for the 1 for which it's not completely clear. We say that given the opportunities we have in megatrend, which will be there, I can tell you, for the second semester for '23 or '24, for '25 for 2013 because of these opportunities in megatrends in a selective way, we will increase a little bit of CapEx.

And also, we spend a bit more for the decarbonization. You could see that we are new climate plant based on the Paris agreement, and we are not so many chemical companies, which are based on the Paris agreement of 1.5 degrees for scope 1, 2 and 3 -- and because of that, we need to increase a little bit of CapEx plan.

So we'll be at 6% versus 5.5%. But since at the same time, the EBITDA margin of the company, as it was mentioned before, I think [indiscernible] and maybe a little bit of that will stay for some time. It's quite okay. But have in mind that the 6% is a new loan for Arkema.

[Operator]

And next question from Andreas Heine from Stifel.

[Andreas Heine, Stifel]

Only 2 questions, left on my end. It is on the Advanced Materials segment in the first place. The volume was down are 4%. But if I look on the 2 business lines, then I would assume that high-performance polymers were working at capacity, so at least on last year's level, which then would bring the volume performance Adhesives down quite a bit. Looking on the end markets and the businesses. I'm a little bit surprised why it might be down that much. Maybe you can give some highlights on this?

And secondly, on the cash flow, indeed, you manage net working capital very well going into the second half with lower activity and probably destocking not only in the industry but also on yourself and having in mind the seasonal pattern -- any flavor you could give how much of net working capital you can release in the second half?

[Thierry Le Henaff, Chairman & CEO]

Okay. So Marie-Jose will answer the second question. With regard to your question on these materials volume, you're right to say they are down 4%. In fact, it's coming from the fact that even if we are sold out in terms of capacity, sometimes you cannot choose the capacity just because you have some specific elements -- and for example, lockdown in China. It was clearly an impact in Q2, and we have in Asia, and China, notably, we have a solid, very solid positioning, so we were impacted by that.

Also, we have still some logistic disruption. This means that the product is ready to be shipped but you can simply not ship. And the product is not arising at the right time. So you have some logistic constraints, which are still existing, maybe not as strong as they were, but they are still there. And then you have in Europe on certain markets, some slowdown, as we mentioned, and it has impacted also Advanced Materials.

So overall, you are right to say that since we are so down, we should be more stable than negative. But since some elements arrive during the quarter, they are mechanically negative impact. But overall, I think on the volume, we have some slight negative, but we resisted very well. And I'm very pleased about the performance in the U.S. and in Asia because the U.S. was significantly up and Asia was really very resilient. Now Europe is Europe, on the working capital, Marie-Jose

[Marie-José Donsion, CFO]

So it is correct to seasonality, particularly releases a little bit of working capital in the second half. If you compare what's happened in the first half versus December last year, basically, the increase in working capital is EUR600 million. So I would expect actually some of that to come back in the second half. So depending on the trend of the economy -- of course, the size of the group continues to grow. So it's fair to say that a certain percentage would be remaining in working capital still at the end of this year. But definitely. I would expect action -- a significant portion of the EUR600 million to -- definitely.

[Operator]

Next question from Martin Roediger from Kepler Cheuvreux.

[Martin Roediger, Kepler Cheuvreux]

Just 2 left from my side. On energy, your consumption of energy last year was 7.4 million megawatt hours. Can you disclose the energy costs in euro terms last year? And what do you expect for this year? And the second topic, I read somewhere in your press release about intermediates that besides this very favorable situation in fluorogases in the U.S. and acrylics in China, you mentioned also that you have implemented initiatives which have contributed to earnings. So what do you mean with the word initiatives? .

[Thierry Le Henaff, Chairman & CEO]

Okay. So with regard to the -- first of all, we don't know what will be the price in the second in the second semester. So there is still uncertainty. What we can say is that overall, we had about 5% of our energy cost of our total variable cost so far. It was in '21. And now it's more 7%.

This means that, in fact, our energy cost has increased more in percentage on our variable costs, but it's still quite a minority part of our total valuable cost. So when we look at our pricing power and ability to offset all this energy is a factor -- that is 1 fact, minority factor among raw material, transportation, logistics and all these costs.

So this is why, in fact, we deliver kind of performance. In fact, we have pricing power, which allow us to assess a different component of the variable cost, energy being 1 of the 2, but it's clear that this is significant. But since we have so much on the raw material overall, it's only an element among other and in a normal world, it would be quite a material element. So it's a paradox of the world of today, but we live with it, and I think we do a good job of passing that to passing that in order to be able to maintain our profitability

On intermediates, -- so first of all, as you know -- so we have two kind of initiatives. You have the one in the one in. Beatrice, we have really a lot of competitiveness, energy consumption efficiency of the plant. This means how much you need to be quite, in Asia.

You need to be quite efficient in terms of raw material supply. So we had a lot of initiatives in order to make our cost positioning better. We have also continued to work a lot in terms of customer intimacy in order to reinforce the customer base. So this -- we see the benefit today. So we are far stronger in China, in -- ccompared to who we were when we bought these assets. And you can see that.

So there is an element of market cycle also. But you can also see that in the current result and it is real. With regard to refrigerants, it's a little bit different because it's more coming our ability to manage with the legislation, where you need a lot of initiatives and that I could not all describe including your positioning on the new generation, how you transition, how you manage your quota. And we have done a lot of job.

And again, a part of the result is coming from the initiative. So it's not just following the evolution of the cycle, but it's really making sure, especially for -- that the base we have is more and more resilient. And I think this is the case and compared to the old days. I think we have a base which is some more resilient than it has been in the time.

[Martin Roediger, Kepler Cheuvreux]

I have a follow-up question on the gas sourcing in Europe. Is Uniper a supplier of Akima?

[Marie-José Donsion, CFO]

Which the player are you talking about?

[Martin Roediger, Kepler Cheuvreux]

Uniper is a utility company, very big in gas distribution and they get their gas from Russia SP1 I will not comment, but as a supplier of gas in France because it's mostly France.

[Thierry Le Henaff, Chairman & CEO]

They are the big names. You know them.

[Martin Roediger, Kepler Cheuvreux]

They are the big names you know that next question from Adrian Delano from Berenberg. I have two queries. On the EUR400 million CapEx for the climate plan, is it fair to consider the majority of that efficiency improvement and no capacity additions. And the second 1 is, what is your appetite for share buybacks now considering the leverage of the company as and with the likelihood of an improved cash flow conversion going forward.

[Thierry Le Henaff, Chairman & CEO]

Thank you. Okay. So on the first one, in fact -- so it's about EUR40 million per year for the CapEx for climate plan and this efficiency improvement only. It's really how we can reduce our carbon emissions because of the investment we are making. So -- and I think we have good ideas and good expertise on that.

Nothing to see with the capacity addition. Now when we announced our climate plan, where you see a further significant reduction of CO2 emission is net of our growth. So it's -- this is why it's quite demanding and ambition. This is because it takes into account the growth, which is, I think, is part of the discussion we had before on the different end markets. We are ambition in terms of organic growth.

We had this organic growth in our CO2 emission, and we deduct all this efficiency improvement. And net of that, we have our new climate plan aligned with the 1.5 degrees. And this CapEx will certainly help us

[Marie-José Donsion, CFO]

So of course, the spot market is quite direct now, but at the same time, you've seen actually the tension on the financial market, the increase in interest rates, et cetera. So for us, right now, we've just completed the purchase of Ashland. Let's say, looking at the situation. But so far, basically, it's more duration something than anything having been decided yet. So let's see how the economic situation evolves before we start spending cash on this. Thank you. I will take the last question.

[Operator]

Thank you for the moment, we have no more questions.

[Thierry Le Henaff, Chairman & CEO]

Okay. So Okay. So I would like to wish you a nice summer. So thank you for your question. And again, very pleased to have this opportunity to share our strong results of the -- the first semester and the solid guidance that we have seen in this crop. So again, thank you for your question and take some rest before we start again for the fall. Thank you.

[Operator]

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