Arkema SA

PAR:AKE

Earnings Call Analysis

Arkema Posts Robust Q2 Results Amid Challenging Environment

In Q2 2024, Arkema achieved a 5% growth in volumes and an 8% increase in EBITDA, reaching €451 million, reflecting strong performance in adhesives and sustainable market platforms. Despite raw material costs and macroeconomic challenges, the company maintained a solid 17.8% EBITDA margin. Arcema anticipates further gains from key projects, with expected full-year EBITDA between €1.53 billion and €1.63 billion. The acquisition of Dow Adhesives will close by Q4, adding value in 2025. With various strategic initiatives and resilience, Arkema is well-positioned for continued growth despite the current economic landscape.

Macro Environment and Market Conditions

In the second quarter of 2024, the macroeconomic environment remained largely unchanged, with no significant global demand recovery. Despite this, Arkema managed to achieve a 5% volume growth compared to the previous year. This growth was driven by a reduction in destocking, strong performance in Asia, and new business development in sustainable market platforms. However, some raw materials faced tight supply due to regional issues such as the Red Sea situation and disruptions from Hurricane Beryl in Texas.

Financial Performance

Arkema reported sales of EUR 2.5 billion in Q2 2024, up 3.8% year-on-year, driven primarily by a 4.7% increase in volumes. However, the company experienced a 2.4% negative price effect due to lower raw material prices. The EBITDA for the quarter was EUR 451 million, reflecting an 8.2% increase year-on-year, with the EBITDA margin improving by 70 basis points to reach 17.8%. Despite a challenging economic environment, these results underscore the strength and resilience of Arkema's Specialty Materials portfolio.

Segment Performance

Different segments of Arkema’s business showed varied performance. Industrial adhesives and specialty polyamides saw significant volume growth, while advanced materials like industrial adhesives witnessed a 15% increase in EBITDA. The Performance Additives segment was impacted by planned maintenance and flooding at the Günzburg plant in Germany, leading to a EUR 15 million EBITDA impact for Q3. Coating Solutions also saw positive results despite low cycle conditions in acrylic monomer, benefiting from strong volume growth and a shift to more sustainable solutions.

Guidance and Outlook

Arkema has confirmed its annual EBITDA guidance for 2024 at EUR 1.53 billion to EUR 1.63 billion, compared to EUR 1.5 billion in 2023. The company expects a EUR 15 million EBITDA hit in Q3 due to the flooding in Germany but maintains a positive outlook due to ongoing initiatives and new projects. Arkema is benefiting from organic growth projects and the integration of recent acquisitions, signaling a robust financial and operational performance despite macroeconomic challenges.

Capital Projects and Investments

Major organic projects contributed EUR 15 million to the quarter's results, totaling EUR 20 million for the first half of the year. Arkema expects this to double in the second half, reaching around EUR 60 million for the full year. The new polyamide 11 plant in Singapore is now operational and will start its commercial ramp-up in the second half of the year. The HF operations at Nutrien in the U.S. will also commence in the fall, which will enhance Arkema’s portfolio of fluorospecialties.

Strategic Positioning and Challenges

Arkema continues to strategically position itself with a focus on differentiated technologies and sustainable development. However, certain segments like Performance Additives faced challenges, including maintenance turnarounds and the impact of extreme flooding in Germany. Despite these hurdles, Arkema remains committed to managing operation costs effectively and focusing on controllable elements like working capital and capital expenditures.

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to Arkema's Second Quarter 2024 Results and Outlook Conference Call.

For your information, this call is being recorded. [Operator Instructions]

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

[Thierry Le Hénaff, executive]

Thank you. Good morning, everybody. Welcome to Arkema's Q2 2024 Results Conference Call. Joining me today are Marie-José Donsion, our CFO; and as usual, the Investor Relations team. To support this conference call, we have posted a set of slides which are available on our website. As always, I will comment on the highlights of the quarter before letting Marie-José go through the financials and at the end of the presentation, we'll be available to answer your questions.

In Q2 2024, the macro environment did not see any real global recovery on the demand side, remaining broadly unchanged versus the past 6 to 9 months. This is also confirmed by the raw materials environment, which remains sequentially fairly stable with the exception of those few raw materials, which show some tightness linked to the Red Sea situation or some temporary issue at suppliers like in Texas recently after hurricane Beryl.

Arkema was nevertheless able to achieve a 5% volume growth compared with last year, which was a good growth, reflecting the end of most of the destocking, a good performance in Asia and the benefit of new business development in the superior growth through sustainable market platform presented at our last Capital Markets Day.

The volume growth was more significant in industrial adhesives, specialty polyamide and the downstream of coating solutions. PIAM's contribution was included in the scope effect since it was acquired at the end of last year but note that they also enjoyed a good volume improvement compared to -- with last year with material progress at some of their key customers in electronics.

Overall, given the state of the economy, Arkema delivered a robust set of results in Q2, well above last year's level with an 8% progression of the EBITDA. Another strong point of the quarter was the EBITDA margin reaching nearly 18%. This undoubtedly underlines the strength of the Specialty Materials portfolio we have built over the years, which allows us to combine high performance and resilience in more challenging times. Our results were already appreciated by the financial community, as you remember in 2023, as we maintain our guidance throughout a challenging year. And this year, our solid results are also, again, clearly demonstrating the benefits of our long-term strategy.

The contribution of the major organic projects listed in the Capital Markets Day presentation was close to EUR 15 million in the quarter, totaling EUR 20 million in the first semester. We expect this amount to double in second semester, so to reach around EUR 60 million in the full year. The polyamide 11 plant in Singapore is now fully operational with significant technical progress achieved by the team in the second quarter. H2 will be the start of the commercial ramp-up. So the contribution naturally to H2 EBITDA will be by nature limited, materially increasing over the years with a ramp-up.

The comment applies as well to the HF operations at Nutrien, we will also start in the fall, the [indiscernible] capacity in the U.S., which is, as you already know, the new generation of fluorospecialties complementing our existing settlement. All our segments recorded EBITDA growth in the quarter with Adhesives leading the way, thanks to double-digit growth, more precisely plus 15%, which is from our standpoint, remarkable in the context following on the positive dynamic in Q1.

Also for the first time, Bostik exceeded 15% EBITDA margin in a semester, confirming that the segment has reached a new milestone in its development. We continue to benefit from a more favorable product mix and from the successful integration of our past acquisition in line with our strategy towards differentiated technologies. The volume growth was at a good level of 5%, supported by industrial assembly, packaging and laboring market in short industrial market, while the dynamics in construction remains subdued.

In Advanced Materials, our EBITDA was up slightly, supported in particular by our new business development in Asia in attractive markets like batteries, energy, sports, medical and by the contribution of PIAM, which benefited from the launch of new models by large consumer electronics players and with a clearly accelerated performance in Q2 versus Q1.

Performance Additives were as expected, below the record achievement of last year, penalized by three major planned maintenance turnaround in thiochemicals. Note also that in the first week of June, Germany experienced an exceptional flooding of the Danube River with water actually rising above the 1,000-year flood level. So creating some damage at one of our plants at Günzburg, mostly electrical installation. The site will have to shut down for 3 months and the impact on the EBITDA is estimated mostly in Q3 at around EUR 15 million on side.

In Coating Solutions, where the upstream of the segment remained impacted by the low cycle in acrylic monomer, downstream activities EBITDA was clearly up, benefiting from strong volume growth and the segment's continued drive to a more sustainable and value-added solutions. So the mix in the quarter was positive, less acrylic monomer, more in the downstream. We are pleased also to deliver in this segment and EBITDA margin still at 14%, given the relative headwind of the upstream, which shows the intrinsic quality of this activity after years of positive repositioning.

On the M&A front, we expect the acquisition of those flexible packaging laminating adhesive business still to close end of Q4 and wrap up from the beginning of next year. The teams are actively preparing the post-flooding phase and are fully mobilized to deliver the benefits of this great deal, we should create significant value for shareholders over time.

After this introduction, I will now hand it over to Marie-José for a more in-depth look at the financials before we discuss the outlook at the end of the presentation.

[Marie-José Donsion, executive]

Thank you, Thierry. At EUR 2.5 billion, sales are up 3.8% year-on-year, driven by a 4.7% rise in volumes. The price effect stood at a negative 2.4%, reflecting essentially lower raw material prices. The scope effect is positive at 2.3% and corresponds mainly to the contribution of PI Advanced Materials in Korea.

Finally, currencies had a negative impact of 0.8% on sales as a result of the depreciation of the Chinese yuan and the Argentinian peso relative to the euro. U.S. dollar is relatively neutral compared to last year. As Thierry commented earlier, Q2 EBITDA came in at EUR 451 million, up by 8.2% year-on-year. EBITDA margin grew 70 bps, reaching the solid level of 17.8%. Depreciation and amortization stood at EUR 149 million, leading to a recurring EBIT of EUR 302 million, up 6% compared to Q2 2023. Nonrecurring items include, on one hand, EUR 37 million of PPA depreciation. PI advanced materials PPA depreciation represented roughly EUR 5 million per quarter.

On the other hand, EUR 49 million of one-off charges encompassing M&A costs linked to the acquisition of Dow Adhesives, restructuring and legal expenses and start-up costs for our PA11 platform in Singapore. Financial expenses standardly unchanged at EUR 15 million with the cost of the newly issued bonds offset by higher interest on cash investments. At EUR 52 million, the tax charge represents 22% of REBIT. And consequently, Q2 adjusted net income stood at EUR 214 million, which corresponds to EUR 2.87 per share.

Moving on to cash flow and net debt. Quarter 2 recurring cash flow amounts to EUR 132 million, quite consistent with the last year's quarter 2, which includes EUR 170 million capital expenditure in the quarter as well as in usual first semester working capital seasonality. The working capital ratio on annualized sales stands at 15.7% at the end of quarter 2, which is in line with our normative level of circa 15%.

As for M&A, we spent EUR 20 million in Q2. This cash outflow corresponds mainly to the acquisition of the majority stake in Proionic and various M&A costs linked to the acquisition of Dow's laminating adhesives business.

Net debt at the end of June '24, therefore, amounts to only EUR 3.3 billion, including EUR 1.1 billion of hybrid bonds and the net debt to last 12 months EBITDA ratio stands at 2.2x.

Thank you for your attention. And I'll now hand it over back to Thierry for the outlook.

[Thierry Le Hénaff, executive]

Thank you, Marie-José for this explanation. As I said earlier, the macroeconomic environment remains challenging and with broad-based of demand with some pickup in volumes here and there. So we will, therefore, continue as in previous quarter, really to manage quickly our operating cost, focus on the elements under our control, including working capital and CapEx.

As you know well, we look forward to the increased contribution of our key organic projects in the second half. I mentioned it earlier, this project should amount to around EUR 40 million in EBITDA as mentioned in the first half. In H2, we will also benefit as in H1 from the additions of PIAM's contribution. On the other side, as I say, we have a one-off and with this flooding of Günzburg plant in Germany. It should cost us EUR 15 million in EBITDA, but it's mainly Q3.

Taking everything into account, on the back of our H1 reasons, the benefit of our ongoing initiatives, which are ramping up and the current macro outlook, we can confirm our annual guidance and with 6 months under our belt, we can also tighten it a bit.

We aim to achieve also in 2024, a higher EBITDA year-on-year of around EUR 1.53 billion to EUR 1.63 billion, depending again on the strength of the macro in H2 compared with EUR 1.5 billion in 2023. And so far in Q3, we expect an EBITDA slightly above last year's level. We will also continue to work towards delivering our medium-term road map, which we announced at the Capital Market Day with progress in our organic project, integrating and delivering the synergies of acquisition and focusing on our value-added innovation together with our customers.

As you know, and I think it's an important message to close this introduction speech. Arkema will benefit from a high density of organic projects and acquisition for the coming year. The density of projects is either organic or M&A is absolutely unique in the specialty chemical industry and will help us to accelerate our organic growth in the future. The essential part of this project has already been financed and the impact on the 2025 EBITDA will already be material with, of course, further ramp-up in the following years.

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

[Operator]

[Operator Instructions] Our first question is from Aron Ceccarelli of Berenberg.

[Aron Ceccarelli, analyst]

I have 3. My first question is on the intermediate segments. Very strong EBITDA generation in Q2 after a weak Q1. Maybe can you talk a little bit about the price elasticity in this business? And how should we think about H2 development for the refrigerant gases?

The second question is on Advanced Materials. May you shed some light on the growth in battery materials. I mean, I would like to understand how much of this was automotive versus other types of batteries? And how much of it was maybe market growth versus market share gain?

And the last one is on your EBITDA guidance for Q3. When you say slightly above last year, is it slightly above last year ex the impact of the Texas -- sorry, of the plant shutdown that you experienced?

[Thierry Le Hénaff, executive]

Thank you for this 3 good question of different nature. First of all, you have a seasonality in fluorogas, so when you say strong Q2 versus weak Q1, it is not exactly true because Q1 was solid, taking into account the Q1 seasonality, which in fluorogas, you have really 2 strong quarters, Q2 and Q3 and you have 2 weaker quarters, Q1 and Q4.

Now I would say our feeling is [indiscernible], if you put the seasonality aside, [indiscernible] will deliver robust, I would say, and the H2 would be -- continue to be robust, but then you have to take into account that Q3 will be below Q2 and the Q1 -- Q4 will be below Q1 just because of the nature of the seasonality in this specific market, which is our fluorogas.

Now in terms of dynamics of pricing. It will continue to be positive by nearly mechanical, you have less volume. So it weighs down on the volume, the organic growth of the company. But on the other side, you have positive pricing with the mechanism of the quarter. So overall, I would say maybe Q2 was a little bit more shining than the usual and clearly, and we appreciate that because it is part of the company. But overall, robust delivery for intermediate and refrigerant knowing that on the other side, acrylics in China remains quite challenging. So don't expect too much from there. But I would say, overall, no surprise in this intermediate. It's a good contribution to the cash of the company and allow us to invest -- continue to invest in the rest of the portfolio.

With regard to the battery, so mostly you too -- still, as you know, I will not talk about market share gain. I don't think we gain market share. I think we follow the momentum of the market. We are targeting, as you know, not so much volume, but the quality of the growth. So we don't -- we are even ready to lose market share, especially against Chinese, but what we wanted to make sure that with our development of asset and which is reasonable our manufacturing footprint, we benefit from a good profitability.

Now what we see is this battery segment, we see two things. Good momentum in Asia. I would not call a slowdown in Europe and U.S. because in fact, it has not really started but some delay on the ramp-up in the batteries there of the [indiscernible] factory because of the expectation from the consumer and also some movement on technology, so some wait and see. But I would say for Arkema, most of our footprint, where we have put our investment is in Asia. So it changed -- it didn't change and for future investment, we have not confirmed yet our decision.

So we -- so for us, we have enough plan. I think we are completely comfortable. And we have also benefit -- will benefit in the long rate of good news and because, as you know, there was a key discussion on NMC cathode battery versus LFP. And you know that at least for the PVDF part, we are better positioned on the LFP and in fact, this seems to be the winning technology for the coming year. So it's good for Arkema , knowing that more and more for Arkema what we try to develop on battery material is beyond PVDF and we have acrylic, we made recent acquisition in Proionic for liquid ionic. We work on [indiscernible] tools. So we develop a lot on the acrylics, and we are the only company with both technology at acrylics and PVDF. So plenty of things going in this segment. So I think we are delivering the plan we presented at the Capital Markets Day, but a plan which is qualitative. We don't chase growth for the growth, we chase growth for the EBITDA development.

With regard to the guidance, yes, clearly, the Q3 guidance when we said slightly it includes the flooding impact. And guidance for the full year, and you have to take that into account includes the impact of the flooding, which means that when you compare it to the previous guidance, it's quite a solid forecast given the state of the economy, as you know, we have increased the lower point of the guidance despite of that from EUR 1.5 billion to [ EUR 1.53 billion. ] And the higher point of the guidance includes that we have not yet seen recovery. So the recovery you were expecting for the higher end of the guidance, which was expected in spring will not arrive before September 1, it's an element.

Then you have this one-off element of the flooding. And despite of that, we still plan EUR 1.63 billion in the range. So I think it's a solid forecast made of plenty, as you know, in Specialty Chemical, plenty of elements, but Arkema is robust with this, I would say, this release of the first semester and second quarter.

[Operator]

The next question is from Georgina Fraser of Goldman Sachs.

[Georgina Iwamoto, analyst]

One super quick one. should we expect at some point an insurance payment regarding the EUR 15 million for the flooding?

And then two questions a little bit longer. So the first is any visibility you might have of customer inventories. You mentioned, Thierry, that the macro is still quite challenging but you're seeing some pick up here and there of volumes. Are you confident this is being met by real consumer demand? Maybe if you highlight any particular end markets where you're confident that we're seeing more than just inventory stocking?

And the last question is regarding potential tariffs. Could you highlight if there are any product lines where you more export globally rather than being produced locally for locally? I'm thinking particularly regarding the PIAM acquisition and the synergy expectations you had reaching the U.S. market.

[Thierry Le Hénaff, executive]

Okay. Again, thank you, Georgina. Again, the first 3 questions, good question, different nature. No, flooding will be below insurance deductible. So there will be no coverage of the insurance payment for that.

With regard to the visibility of inventory is very difficult at customers frankly speaking, the supply chain are long. So you cannot -- you try to, let's say, to analyze with some in-depth understanding, but overall, it's a global feeling. We believe that the destocking or most of the destocking has finished compared to what it was last year. When we say some pick up here and there, it doesn't mean that we have a sort of base demand and that on top of it, we have some pick up, we have some pickup on there and also some downstream season there. So overall, there is no demand traction. And what we deliver is mostly coming from our new business development or some end of destocking that has happened last year we don't see really any restocking.

So is the main message there, we really count on ourselves. And if we have some restocking and some rebound, let's say, starting in September or later. It will take the forecast of the year from EUR 1.53 billion to -- up to EUR 1.63 billion. And this is -- to be clear, this is the nature of forecast for the year.

With regard to target exposure, we see exchange all the time. Sometimes it protects us, sometimes it can be question mark. But overall we see the administration is changing in the U.S. But with PIAM in Korea, it's not in China. We think there is more a tariff from China. It will be -- it will help PIAM clearly especially for what we call the synergy in Europe and in the U.S. We think that Korea is a country which is quite close to the U.S. and to Europe. So we don't see any specific concern there on the contrary. So no, we'll see -- I think we -- overall, Arkema for most of it supplying the region from the region. This is our strategy. This is why we have invested significantly in U.S. and in Asia over time. And because of that, I think we are less impacted by tariffs.

On the contrary. I think we like with the tariffs that protect some markets, which could be sensitive like, for example, polyamide from China, et cetera. Overall, it's not a big concern for -- I mean your question, I would say that's not concerned to -- does not address any specific concern from Arkema, and this is valid for -- this on service valid for PIAM, okay?

[Operator]

Next question is from Andreas Heine Han from Stifel.

[Andreas Heine, analyst]

Yes, only 3 minor ones left. The first in thiochemicals the turnarounds, where they're all behind. So is [ cost free ] of that? Secondly, you were talking about higher acrylic demand, especially in Europe, that was partly probably due to the political environment around the Red Sea. Is that a temporary impact? Or do you think that that's a lasting?

And the last one is the start-up costs you account for the polyamide plant in Singapore. When will then they come to an end? So when is your utilization rate at the level that you say there are no start-up costs anymore?

[Thierry Le Hénaff, executive]

So on the thiochemicals, the second part of your question was not completely clear. Could you...

[Andreas Heine, analyst]

On thiochemicals, whether the maintenance is behind, so whether 3 all plants are running.

[Thierry Le Hénaff, executive]

Yes, sure. It is behind. It was already in a quarter. So all three plants are running now, and they were planned maintenance. And now with regard to the acrylic, first, we had a low base of comparison. It was true full for Europe and for Coating for U.S. Back to the question of Georgina, it is an area where we see some end of destocking, so like-for-like compared to last year, you made progress, but you make progress compared to a low base. I would say that some rate impact is occurring it's still -- situation is still complicated there.

I would say we see more continuity in acrylics. There is no real overall big traction on the demand and it's more a comparison to the base of last year. What we expect now in acrylics, but it will take some time some improvement from a cycle, which is close to low cycle quarter-by-quarter of some improvement but we are not there yet. The good news in Coatings, I would like to mention it again. I take advantage of your question to mention it, is that with acrylic monomer, overall, close to low cycle, we are able to deliver 14% EBITDA margin, thanks to the positioning of this Coating segment, which is important to appreciate.

With regard to polyamide 11, yes, you're right to say that the operation have significantly improved in Q2. The plant is now operational. It will take time to ramp-up. We have invested, as you know, 5 years, it's 5 years of capacity. And because 50% of the total polyamide 11 sales of the company even if you assume 8% volume growth in average for the coming years, it takes 5 years. This means that the EBITDA will ramp-up steadily, okay? And on the second semester, the EBITDA contribution will still be limited by nature because this is a start of the ramp-up.

Now last point is that clearly, with nonrecurring, we are really going quite quickly in the right direction, so no doubt about that. There is one final verification step to complete with local authority, which have to validate the full start-up, which means that you have in the month of August 4 weeks of, let's say, shut down for maintenance and verification by the authority, which is a normal step. It was planned already 2 years ago, okay? But I think the good news is that we are now technically, now, we have to deliver the expected commercial ramp-up.

[Operator]

The next question is from Jaideep Pandya of On Field Research.

[Jaideep Pandya, analyst]

Maybe start with the comment first. And Thierry, I would like to really complement you because I think the last, maybe a couple of years, you guys have been in a bit of a problem gone over with PVDF comparisons. And I think today, your esteemed competitors delaying their U.S. site. And so kudos to you on reading the cycle well again for that.

My first question -- sorry to start this, but intermediates. Could you give us some color about the China quota situation? Because it seems like there will be quotas coming in '25. So what is the exposure these days you have to China? That's my first question.

Second question is around Advanced Materials. When we think about a little bit longer term, so in the next couple of quarters when you're up and running on PA11 and Nutrien and potentially have some recovery coming through in PI. What is the sort of run rate EBITDA on a quarterly basis seasonally that we should expect? Should -- do you think this division can go back to doing EUR 250 million plus? That's my second question.

And then the third question really is around Adhesives. What do you see with regards to the end market dynamic there in terms of industrial versus construction? Do you think 2025, again, can be a scenario where industrial is improving and construction join the party? Or do you think that we will stay in this difficult environment in construction?

[Thierry Le Hénaff, executive]

Thank you, Jaideep. So on your different question, in fact, our exposure on the -- since we closed few plants in China, which delivered a very strong payback but there were of traditional fluorogas, I would say, many years ago. I don't think there will be any specific exposure to Chinese quota coming in '25 is not a topic for us, at least not material.

With regard to Advanced Material, I see your question. But in fact, we have two questions. We have one to which we have already answered during the Capital Markets Day, which if we take all these very nice projects, organic and M&A, what will they contribute [ at front ] maturity? And we say in the Capital Markets Day, if you include organic and M&A from the projects that we have mostly already financed, we expect between EUR 500 million and EUR 600 million of EBITDA coming, of this will get EUR 60 million plus PIAM this year, okay? And then you can take a straight line. And then you see what it could be.

Now more specific not just year, but quarter-by-quarter but this will take '25. What it will be. You can already have with this straight line the first idea. And clearly, when we communicate, but it's not now, it's in 6 months, on the '25 guidance, we will be more specific on the benefit from all these projects. The idea that you have in mind that we need to keep this in mind. And this -- I think it's unique in the specialty chemical industry is that we have invested in the past 2, 3 years, very significant amount of money or this project will contribute at maturity, EUR 500 million to EUR 600 million of EBITDA. And already in '25, we will have a material contribution to that. So as that in mind but now we'll be more specific, we'll communicate on '25, 6 months from now.

With regard to Adhesives, it's clear we have more or less as industry as construction, we don't know yet what it would be '25, certainly will be better than '24. Despite of that, Arkema -- Adhesives inside Arkema have really demonstrated a strong success already this year with an economy, which is not wonderful with some restocking to come back to the question of Georgina already. My feeling is that construction will continue to stay challenging. But we have -- for us on the construction that we serve, the construction is very broad, it has already stabilized. So maybe you can stay at a point we consider for standard rather low, but it will not continue to deteriorate. So now the question is the speed of recovery and this nobody knows. Industry will continue to grow in '25 and beyond, both coming from our whole new business development, but also from the underlying deman. Okay?

[Jaideep Pandya, analyst]

If I can just ask one follow-up on China. Do you see a reason why you could get out of this business, given you bought it with an optionality angle and the cycle has not played out particularly? Or do you want to stay in it given there's not much capacity coming in acrylic acid and on a 5-year view, even in China? So is there upside to this if you stay? And if there is -- if you go back to mid-cycle, what would be roughly the EBITDA that you could benefit from?

[Thierry Le Hénaff, executive]

So without being too specific, first of all, 2 years ago, I mean, we had very strong results in China, in '22, it was a superb year in China in acrylic. Now it's low cycle. So it went very fast. What will it be tomorrow, there will be good years and more challenging years. Overall, it's not a matter of payback on the investment because we delivered the payback quite well so far. So now it's more a question of strategy and volatility of this business. You have seen that our portfolio is becoming very resilient, and this acrylic in China from the standpoint creates volatility, which is a topic.

So what we said at the Capital Markets Day on that is that will be pragmatic and will be open. So we want to reduce the exposure to China acrylics. The question is at which speed and to which extent and these question are still open. But the first -- before taking any decision, the first step is that we have a recovery of the cycle. We see when it comes. And depending on that, we'll initiate -- not initiate shortly. This is the only thing we can say so far.

And the good thing is that Intermediate because of a fluorogas as a whole because they never go necessary in the same direction at the same time, overall, and you can take it over many years in the past, overall, the sum of the two is really ring a nice results. So sometimes it's more acrylic, sometimes it's more fluorogas. But overall, the sum of the two. For Intermediate business, it is not better.

[Operator]

The next question is from Jean-Luc Romain of CIC Market Solutions.

[Jean-Luc Romain, analyst]

I would like to know if you could update us on different PVDF issues you have in France, it seems that the [indiscernible] Metropolis again going to resist to find out if there is pollution due to Arkema and the other player there. Could you update us on that and then the overall risk you see on PFAS particularly in France and Europe?

[Thierry Le Hénaff, executive]

No, on PFAS, there is nothing new, which has happened. So it's -- we have already updated. So we can see that during the quarter, nothing has been new. With regard to your specific point of -- which is more incremental per [indiscernible] with the Metropol, where they would like us to make more analysis where we make already analysis, we see what the -- what is the judgment, but we'll do again what is required to us as we are doing. I think we are working in full transparency with authorities in France.

We respect to all legislation, and we continue to follow up. So it's more a local topic, I would say. And beyond that, I think there is nothing new. You are mentioning Europe is more the question of the [indiscernible] which is a topic which is far beyond Arkema by far so far, where they want to know what -- which -- what they call PFAS, which is a really very broad topic, we'll be able to make in the long run in Europe, it will take years.

But I think we have a strong grounds to defend the PVDF as our competitors are doing. And PVDF is only one small item of PFAS among the big, let's say, to peak of PFAS in Europe. So now to make the story short, nothing really new in the quarter. And for Europe through the [indiscernible], where we believe that PVDF has a good card to play. It's social product for battery. We mentioned battery before, but also for semiconductor and plenty [indiscernible] industry. We see what we work in, as usual, like all industrial, there are, I don't know, thousands of answer to [indiscernible]. We see what is coming out of that but we believe that PVDF has to continue for the long run for all these essential application. And again, it's only a small topic among far bigger ones.

[Operator]

Next question is from Chetan Udeshi of JPMorgan.

[Chetan Udeshi, analyst]

I have a slightly different weird question this time. I was just looking at your P&L, and I know you probably don't give gross profit or gross margin as a KPI for you, but I was just trying to do the sales less operating expenses and it feels like your gross margin is somewhere around 22%, maybe there are some costs, which may not be Coatex related, but I'm just curious because more specialty chemical companies would be sitting somewhere in the 30% plus gross margin. So why that metric for Arkema doesn't look as good in general? Is there some explanation to it?

And the other question I had was -- and sorry, this might be my misunderstanding but I heard Marie-José talk about the start-up costs for PA11 still reported as special items. And I'm just curious why still that -- why is that still the case? Because the project is now up running. So why is the start-up cost to be classified as one-off?

[Thierry Le Hénaff, executive]

I think on these two questions, two very clear and short answer. On the first one, I think we have 18% EBITDA margin. When I compare with the peer you mentioned, for most of them, our EBITDA margin is significantly higher. So I don't think we have any -- after that, I don't know what you have inside your gross margin where you would compare us below the other one. If you want to discuss with Beatrice to understand better, please do it, but I think we will certainly not suffer from any comparison in this -- in this respect. I don't know where your figures are coming from. So no clue. So I would say that the only thing we know is that the figures we publish, how we compare to peers, we are in a very good position. I fully, you can appreciate it and recognize it.

With regards to startup costs, I think we have been very clear in the last call, you can take what we said during the last conference call on the startup cost, we said that we will continue to have in the Q2, start-up that they will diminish, okay? Because we would -- it would be fully operational at the end of June, which has happened but there will be start-up costs again in the Q2, which has happened, but they are in the world than they were before, exactly what we said.

And again, we say it's going in the right direction. So they will certainly continue to diminish quite strongly. We have this question, which I've mentioned. I'm sure you have listened to it just 10 minutes ago where we mentioned that there would be some verification, which are formal and which were planned 2 years ago by the local authorities. In our [indiscernible] you need to have a shed of the site where they check everything, which is normally in Asia -- so which will have some costs to finalize completely the start-up. So we are really exactly where we said we would be.

[Operator]

The next question is from Geoff Haire of UBS.

[Geoffery Haire, analyst]

I have two. First of all, just on the guidance for 2024 for EBITDA. Could you just outline what you're assuming for organic growth or volume and price, depending on how you want to do it at both ends of the guidance that you've given, it would appear to me that at the bottom end of the guidance, you're assuming negative organic growth, but I just wanted to check that.

The second question is that you clearly in some businesses, particularly Adhesives and Advanced Materials benefiting from raw material prices falling faster than selling prices. How long do you think that can continue?

[Thierry Le Hénaff, executive]

On the first one, I think we already are rather precise in the guidance and the EBITDA, now everybody has a lot of information. I mean, we supply a lot of information. You can make your assumption, if you want to refine your assumption, please do it with Peter and Béatrice [indiscernible]. we have our sales at the level of the company precise forecast to consolidate the guidance to make sure that it is always, but will not comment in detail here. But please, I mean, you have the access to Peter and Béatrice if you want to check some numbers of your model.

With regard to the Adhesives. We have some slightly net pricing, which makes maybe a difference between Arkema and some of the things, which means that we have a good pricing power so far as the raw materials stay stable, we will continue with this slightly net pricing is a change one way or the other. We try to be, as usual, productive to. It's important. And the cost of doing business in the chemical industry and remaining industry is continuing to increase and more legislation, more CapEx, more [indiscernible]. So it's important to continue to have a positive net price shift.

We have been able over to demonstrate that it was the case for Arkema. We are still submission to continue to -- we are improving our mix towards a more value-added application in sustainable development. This is all the nature of our strategy. So we try to get net pricing positive along the road. So we plan to continue. But it's not so much the evolution of the raw material. It's more the evolution of the portfolio, I would say. But so far, in a world which has been volatile with raw material changing a lot. We are slightly positive this year, which I think is a context is certainly a good movement and this raw materials stay stable.

After that, Geoff, we -- it's a year-on-year comparison. It's not sequential. So when -- what was positive at a certain point become neutral at later just because we did the job before, so we are neutral certainly comparison will be a bit less favorable at this point. But the idea is to stay at least [indiscernible] on the raw material side, net pricing.

[Operator]

Mr. Le Henaff, that was the last question. Back to you for any closing remarks you may have.

[Thierry Le Hénaff, executive]

Okay. Thank you very much. In this early August discussion, I would like to thank you to have connected so many of you. I hope you appreciate the quality of the release of the results and don't hesitate if you have any further questions to contact as some of you may have Béatrice and Peter to have some complementary answers, we'll be certainly open to answer. And for the ones who take vacation now, please have a nice vacation. Okay. Thank you.

[Operator]

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