Arkema SA

PAR:AKE

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, welcome to the Arkema Third Quarter 2018 Results Conference Call. I will now hand over to Mr. Thierry Le Hénaff, CEO. Sir, please go ahead.

[Thierry Le Hénaff, Chairman & CEO]

Hello, everyone. Good morning. Welcome to this conference call. With me today are Marie-José Donsion, so our CFO; and the IR team. As usual, we have posted on our website, in addition to the press release, a set of slides, which details the third quarter performance. So what I propose is, first, to comment the set of results and then I will answer your questions together with Marie-José.As you have seen from the press release this morning, Arkema achieved this quarter really another very solid performance with an all-time high EBITDA in the third quarter at EUR 374 million and an adjusted net income up 18% year-on-year, which is quite significant.I will have to start this presentation by focusing on a few highlights. First, this quarter's EBITDA is up 5% year-on-year. This is a very good performance, bearing in mind, and I'm sure you bear in mind, that we were up against the excellent performance of Q3 last year when EBITDA grew 17% and that we are operating in a high raw material cost environment. In this context of high raw materials, our specialty businesses resisted well at high levels, while our intermediate chemical businesses continued to benefit fully from this situation. As a result, our global performance is excellent and we continue to demonstrate our progress and resilience in different types of environment, as we have done since 2015. I'll remind you also, if I may, that we have delivered EBITDA growth for 16 quarters in a row.Secondly, EBITDA was up year-on-year in all 3 divisions, highlighting the quality and the diversity of our portfolio and our good geographic positioning.With regard to the macroeconomic environment, which has been a talking point, including this morning, among investors, it remained, as you know, volatile and contrasted with different dynamics by end markets and regions. Yes, September was a bit softer than expected but October is normal. And however, we have not noticed any significant slowdown in any specific end market and have continued to see good momentum in several markets such as oil and gas, electronics, batteries or sports, reflecting our focus on innovation. Going forward, we will continue to remain attentive to the macro development. And certainly, we'll continue to focus on what we do best, which is what we control.Lastly, I wanted to highlight the strong priority we gave to price increases during this quarter. It's something we discussed over the summer sometime to the detriment of volume growth. In Q3, we continued to increase our selling prices to recoup higher raw material costs and have even intensified our actions, especially in our more downstream businesses. This resulted in a positive 6.6% price effect compared to 5.8% in Q2 and 5.4% in Q1. These efforts are bearing fruit, and we are step by step restoring our unit margins. In the coming quarters, we continue our actions to recover the full impact of raw material cost inflation, which started for some of them back in 2016.Now I would like also to comment on a few figures. At 17.3%, EBITDA margin is close to last year despite the impact of higher selling prices on this ratio. This good level reflects the combination of strong pricing policy, mix optimization, innovation, bolt-on acquisition, and of course, cost control. The second point is a significant increase of 18% of our adjusted net income and adjusted EPS, which reflects higher EBITDA, stable D&A and the benefit from lower taxes, in particular in the U.S. With regard to cash, free cash flow amounted this quarter to EUR 227 million. We are pleased with this performance achieved in an environment of high raw material cost that impacted the level of both receivables and inventories. It enabled us to decrease materially on our debt to below EUR 1.2 billion. I'm sure you have made the math. So as you can see, the debt is well under control at 0.8x EBITDA over the last 12 months. As usual, we work hard to deliver on the short term while continuing to invest for the long term and sow the seeds of our future growth. Without commenting into much detail on all our ongoing projects, I would like to focus on 2 examples of the small bolt-on acquisitions we are doing in adhesives and which fits well our expansion strategy in industrial adhesives. With the acquisition of the industrial adhesives of Nitta Gelatin, we strengthen our position in Japan to supply the growing market of packaging, transportation and electronics. We have also completed a very promising acquisition in engineering adhesive with Afinitica, which has developed an innovative and patented protection process to formulate high-performance instant adhesives with a broader number of applications compared to the traditional cyanoacrylate adhesives. You see the first step by Arkema in our ambition to build a solid position in engineering adhesives, especially in the electronics market. These 2 acquisitions will contribute to Bostik's long-term growth and profitability improvement. I would like also to confirm that we are well on track with our major industrial project that are due to start contributing from next year. This is notably the case of our PEKK plant in Alabama, our new 90,000-ton reactor in acrylic in Clear Lake in the U.S. as well as Sartomer in resin expansion in China.So as you can see, another busy quarter implementing and delivering on our strategy.I will now hand it over to Marie-José for the details of 3Q figures.

[Marie-José Donsion]

Thank you, Thierry, and good morning, everyone. So I'll start, in fact, with the sales bridge. As you can see, our sales are up 7.3% compared to last year. Scope effect is positive at 0.9%, which reflects the integration of our bolt-on acquisitions in adhesives, so namely XL Brands and Nitta Gelatin's industrial adhesives in Japan. At constant exchange rate and scope, revenues are up 6.7% at EUR 2.2 billion, driven, as Thierry mentioned, by a 6.6% price effect which reflects the priority given to the continued actions to increase our selling prices and recover from the higher raw materials, especially in our more downstream businesses.Volumes are overall stable against last year's strong comparison base. This reflects the price over volume priorities I've just mentioned as well as the impact of the regulations in Fluorogases and the customers' more cautious approach, if we can say, toward the end of September.EBITDA reached EUR 374 million, which is an all-time high in a third quarter. It's up 5.4% against last year, which was itself a high performance. All 3 divisions are up, concerning the good resilience of specialty businesses and the very robust performance of intermediate chemicals. At 17.3% EBITDA margin, it's close to last year, reflecting the mechanical dilution on the rates resulting from the higher selling prices.Recurring operating income amounted to EUR 265 million, up 7.3% year-on-year. So it includes a stable depreciation and amortization at EUR 109 million. And therefore, the REBIT margin is stable at 12.2%.Nonrecurring items related mainly to depreciation and amortization of PPA for EUR 8 million. It corresponds, in fact, to the revaluation of assets carried out as part of the Bostik, Den Braven and XL Brands acquisitions' purchase price allocations. We also booked EUR 8 million nonrecurring expenses as part of the implementation of synergies in the adhesives. Taxes are down on last year at EUR 49 million. Tax rate is therefore down year-on-year at 20% on recurring operating income. This reflects both the benefit from the U.S. tax reform and our geographical mix of results.Consequently, adjusted net income reached EUR 186 million, up 18% on last year and delivering a EUR 2.44 per share.Looking now at the performance of our 3 business divisions. High Performance Materials showed sales up 2.4% on last year at constant scope and FX with 1.9% price effect reflecting our continuous actions to raise selling prices across the business.Volumes are up 0.5% compared to the high third quarter '17 performance. Demand was lighter for lighter materials, and the demand as well in consumer goods was once again solid this quarter, but volumes were impacted by strong priority we gave to prices. The 2% scope effect corresponds to the integration of our bolt-on acquisitions in adhesives, and in particular, XL Brands, of course.With EUR 162 million EBITDA and 16.4% EBITDA margin, this division, High Performance Materials, confirmed their resilience in an environment of higher raw material costs, benefiting from the price increase policy that we've implemented notably at Bostik. This performance reflects also the benefits from innovation in Advanced Materials, the smooth integration of our acquisitions in adhesives as well as the lower contribution for the third quarter from molecular sales compared to last year.Regarding Industrial Specialties, sales are up 8.1% at constant scope and FX with 11.4% price effect, positive in all 4 business lines.Volumes are down 3.3% against last year on lower selling quotas in Fluorogases in particular. EBITDA is up 10.7% at EUR 165 million with EBITDA margin at 25.5%. This performance is once again very robust and driven by benefit from the F-Gas regulation in Europe, a slight normalization in PMMA towards the end of the quarter and the robust performance of both Thiochemicals and hydrogen peroxide. Finally, in our Coating Solutions, sales are up 13.7% at constant scope and FX, driven by price increases in the whole acrylic chain, resulting in a 10.2% price effect. Volumes are up 3.5%, mainly driven by solid demand in the U.S. and in Asia.EBITDA increased 4.8% versus last year, up EUR 65 million, thanks to the continued gradual improvement of the monomer unit margins and in line with our assumptions. Downstream businesses have continued to be impacted this quarter by higher raw material costs such as acrylic acid or MMA.Looking now at cash. Arkema generated strong free cash flow of EUR 227 million this quarter. It reflects the good cash generation from operations, the seasonal decrease of working capital, also EUR 65 million, and EUR 142 million of CapEx. This CapEx level is higher year-on-year and in line with our investment plan. So I'll remind you that for the full year, we expect CapEx, both recurring and exceptional, to amount to EUR 550 million.Working capital continues to be strictly managed with the working capital on annualized sales ratio at 16.1%. This compares to 15.5% at end of September '17 and 16.8% at end of September '16. So we are, let's say, in between the 2. M&A investment amounted to EUR 27 million on the third quarter, mainly relating to the acquisitions in the adhesives that Thierry mentioned as well as the creation of a joint venture with Barrday in thermoplastic composites for the oil and gas market.Net debt decreased significantly during Q3 to EUR 1.1 billion. It represents 0.8x the last 12 months' EBITDA and a 24% gearing. So as you can see, we continue to drive a strong balance sheet.That concludes my comment and I hand over back to Thierry.

[Thierry Le Hénaff, Chairman & CEO]

Thank you, Marie-José. I propose now to comment on the outlook for the full year before answering your questions. As you have seen this morning in our press release, taking into account the dilemmas in the first 9 months of the year, we fully confirm our 2018 guidance we communicated early August, targeting, as you know, a mid-single-digit EBITDA growth, meaning around 5% gross compared to the excellent performance achieved in 2017. So we are already in full continuity with what we said over the summer.I said earlier today the economic environment remains globally volatile. And we'll certainly, as everyone, remain attentive, monitoring both macroeconomic and geopolitical developments. But more importantly, we'll continue to focus on what we control. I mean, our internal actions, more specifically our new business development through innovations, integration of bolt-on acquisitions, our cash generation, implementation of large CapEx expansions in the U.S. and Asia. As emphasized all year, we'll also continue to implement our pricing policy to recover raw material inflation.So to wrap up these introductory comments, we posted another very solid set of results this quarter, further demonstrating our resilience in a volatile and contracted environment. We confirm our full year guidance and are confident to achieve it. And finally, we continue to actively invest for long-term growth with our CapEx program, innovation efforts and bolt-on acquisitions. So that concludes my comments and I thank you really for your attention. And we are now ready, together with Marie-José Donsion, to answer any of your questions.

[Operator]

[Operator Instructions] We have one question from Mr. Martin Roediger from Kepler Cheuvreux.

[Martin Roediger, Equity Research Analyst]

Three questions I have. First of all, on High Performance Materials, you gave priority to prices rather than volumes. Is the problem the duration of the contracts, which hold you back in passing on increased raw materials to customers? Or is it the competition you have in High Performance Materials? Staying with High Performance Materials, this is my second question. Can you talk about the individual end markets? And I mean, not only consumer goods, which performs quite well, but also other end markets such as construction, automotive or other industries. And finally, a minor question. This is on the PPA-related amortization charges, which were acquired low at EUR 8 million in Q3. But it should be normally EUR 12 million because of EUR 10 million coming from Bostik and EUR 2 million from Den Braven. What do I miss here that PPA is now lower than it should be?

[Thierry Le Hénaff, Chairman & CEO]

Okay. I will start with the first 2, and then Marie-José will handle that which is more specific. Okay, on the HPM, no, it's not a matter of long-term contract or competition. We are talking about specialty products. The more you go downstream, the more your customer expects stability of price. So it takes with it a magnitude which was exceptional of 0 price increase over 2 years, which was simply doubled. Okay. It takes time, as you know, and we have a strong experience in chemicals. When you talk about intermediate products like acrylic acid, maybe it's a part of that it grows fast. When you talk about specialty products, because of the nature of this product, which are highly valued, your product which are more stable in price, it takes more time to reflect very high increase of raw materials. So there is nothing particular in the case for all specialty chemical companies. And it's difficult at the same time to shed volume knowing that Arkema has never been market -- aggressive in terms of market share. We always prefer profitable growth than just the top line growth. And so we decided, in the course of this year, to make sure that we were because you cannot wait compensating the raw material into our pricing, including for very downstream specialties. Because in specialties, you have, let's say, products like polyamide 11 and we have already done the job and the limit is more the production capacity, and adhesives, which is even more downstream, where it takes more time. So there is nothing new. This phenomena have always formed in chemical as we are in a good track. And at the end, you're in a high raw material environment, your ability to be resilient and you see what we clearly demonstrated. So I think it is really, frankly speaking, it's more positive news than anything else. On the end markets, in fact, because your question is reflecting the question we had during our road show, which is what about automotive, what about China, what about construction, et cetera, so it started 1 month ago, and we tried to answer the best way possible, looking at our figures and what we see inside Arkema. Clearly, we don't -- I mean, we don't see any clear front. It's clear that the world is volatile, certainly cautious because of all these geopolitical tension and this volatility in raw material. But at the end, we cannot identify if it is your question what end market which would really decline or whatever. You have some which are more positive, some which are more negative. But at the end, it's more volatility than any significant decline of any market. You were mentioning the automotive, which is only 6% of the Arkema sales. Automotive, by the way, it's a paradox. But we are, in fact, slightly positive in the Q3. So actually depends on the positioning of each one. So -- then on construction, yes, it's clear that European construction was a bit negative. Is that a long-term trend, we don't know. So I'm always cautious to extrapolate. What I can say is that there's been no volatility in September. October is back to normal. We see what's going on. But for the time being, we don't see any markets really significantly declining, at least when we look at the sales of Arkema, which is, as you know, quite diversified. And we have no significant position on every market. On PPA, I will ask Marie-José to answer.

[Marie-José Donsion]

Okay. So in fact, the purchase price allocation is mainly allocated to intangibles versus tangibles. So basically, we depreciate as we progress. So we just have, let's say, a finishing depreciating some of the items. So the amount is lower than last year due to that reason. So the EUR 8 million is, let's say, something you can count on for the future.

[Operator]

We have another question from Thomas Wigglesworth from Citi.

[Thomas P Wrigglesworth]

Three questions, if I may. Just looking at the drop-through, if I look at your organic growth, either price and volume effects in the second quarter kind of led to about EUR 30 million of incremental EBIT. And we only saw a similar level of growth at the top line, but only around EUR 20 million of incremental EBITDA, so I should correct myself. So could you help -- why is that? I mean, especially as it's very price-heavy, it seems strange that there's not a better drop-through coming through from the growth opportunity that is there. Secondly, in High Performance Materials, what do you think the underlying growth rate was for the business? And I assume that your volumes were 0.5. And thirdly, just on MMA, there have been announcements by ICIS...

[Thierry Le Hénaff, Chairman & CEO]

Thomas, you can ask again the second question because you've been very fast. So we try to finish what you are saying and asking, but if you want to have clear questions, we need to have the time to digest your questions. Okay, thank you.

[Thomas P Wrigglesworth]

Sure. So on the second question, what was the underlying growth rate in the High Performance Materials markets, noting that you prioritize price over volume. So what do you think the underlying growth rate was in the third quarter and how should we think about that for the fourth quarter? And a final question, if I may, around the SAMAC plant for MMA, seems to be an on and off a lot over the last couple of months according to ICIS. I was wondering if you could confirm whether that plant is fully operational and what your expectations are for its contribution into the market over the -- into 2019.

[Thierry Le Hénaff, Chairman & CEO]

Okay. So first, with regard to the results and the comparison within the 3 with other industry for the third quarter, first, we are very proud of our results. So I don't know if we believe it will compare to last year, which was really a record. We should not forget that. We increased our net result by 18% compared to that. So maybe not everything is perfect, but it shows that our portfolio is a very good quality. It's clear, and we have mentioned since the beginning of the year, even before starting the year, when you have tension on raw material, when raw materials are increasing, when you have this kind of geopolitical tension, it's a better environment for more intermediate products than it is for specialty. So the name of the game for us this year was at the same time to grow -- to take advantage of that to grow our industrial specialty profitability, notably in our intermediate business profitability and to demonstrate which we are expecting because we've got many questions over the past year about the resilience of HPM, to demonstrate that HPM, whatever the environment, was able to resist well. And this is what we have demonstrated this year. Even in the Q3 where we see all your questions, we saw your questions during the road shows, where you are, you said, worried about the macro environment, and the answer of Arkema is to say, look at it. We were, end of July, early August, we have said we would deliver for the second part of the year so much and we are fully on track with that, without any question. So at the end, some part of the market are demanding volatility, but I think that Arkema is bearing well in this environment. So maybe we could have what you call a better drop-through or whatever, but the result is really -- is very good, very strong, very resilient. And we have -- maybe you don't have so much visibility on the environment, but on Arkema result, you can have visibility. We took the bet and it's already a challenge to give you very precise guidance for the year early August. And we are delivering. So I don't answer in detail your question, but I think it's something that hopefully you should, if I may, appreciate. And again, we compare to a level of profitability of last year, which was quite good. Now with regard to HPM, with regards what is the underlying growth, which is your second question, it's very difficult to know, especially on a quarter. It's a business which typically can grow at GDP plus. As you know, we have some instance, some limitation on certain product line like PA11. So for us, we are a little bit below the market, but we managed very well the price and mix, which means that the EBITDA is able to grow over years as quite well. It's clear that in the current environment, but don't just look at Arkema, look at everybody, certainly, you have some, because of this customer cautiousness into the macro environment and geopolitical tension, you had some adjustment of stocks certainly somewhere and you have less -- you grow less than the GDP so you are something below for the time being, which will certainly you have a little bit of correction, and it will come back there. And as I mentioned, October was quite okay. So I think the underlying growth rate in HPM is still GDP plus. October, depending for Arkema, depending on which line, we are -- over supply, we manage the mix and a little the volume, but the pricing. Some others, we grew at this rate like PVDF. And for the current environment, so if I took note for the year, but really for Q3 and Q4, it's clear that we have a little bit of the stock linked to this cautiousness that you see in the environment. So -- but which we fully manage because, again, I come back to our results, which are quite good and quite resilient. On the SAMAC MMA, so it's very difficult to comment about other players. I think the operations are ramping up. So certainly, I would not say everything is on the market, but major parties on the market. Exactly what, it's difficult to know. So you have to first -- I see some. Maybe they know exactly what is clear result, as we mentioned. And we told you early in advance, we start to see some normalization, that we will get in the Q4 gradual normalization. We're still seeing that this business will stay at a good level, but not at the peak it has been for a couple of years. But on the other side, we encourage you to look, when you look at Arkema, the combination of our 3 intermediate businesses: fluorogas, acrylics and MMA/PMMA. And we believe that, especially when you look at MMA/PMMA and acrylics, I think one can offset the other. This is the idea, and for the time being, we demonstrate that. So no specific concerns for Arkema. MMA will still be at a good level, but there will be some influence, clearly, of this new capacity, knowing that for us it's temporary and it's manageable.

[Operator]

We have another question from Madame Georgina Iwamoto from Goldman Sachs.

[Georgina Iwamoto, Associate]

I've got 2 questions. The first is on volumes. So not saying that you were basically flat in volumes in the third quarter. I was wondering if you can give us kind of how to think about volumes for next year. So I guess, bearing in mind your volume constraints and assuming that you need to continue prioritizing pricing to offset rising input costs, does that mean we could even expect some negative volume growth in the coming quarters? And maybe you could remind us what capacity expansion we should expect to see and the timing of that next year. And then my second question is on acrylic acid. Can you just talk through the market dynamics you're seeing in each of the regions? Are you still seeing improvements across North America and Europe and also in China? And at what stage like -- and what time frame would you expect the market conditions to return to reinvestment level?

[Thierry Le Hénaff, Chairman & CEO]

Okay. So with regard to volumes, so for next year, we'll -- as you know, we comment -- we'll start to comment next year, in March of next year every year, so we'll not change our habit, but we have no any specific concern with regard to volume. And we believe that, at the end, when we see price and volume, we have been wise enough, you can look at the past year, to manage well the combination to make sure that we deliver the EBITDA that we want. So we adapt permanently to the market conditions. Maybe the oil price will decrease next year, you don't know. So I think it's difficult to predict that. It depends really on the oil policy. And we are a very flexible company, as you know, so we try to adapt to market conditions. So we'd see for next year. And it's early to say what should be our right policy. What is clear and it's an important point that you have mentioned, I think we are very wise and attractive expansion that we'll go through next year and the years following, so you will start next year with a PEKK plant, then you will get the acrylic acid in Clear Lake also, which is a good addition. You have Sartomer starting, especially with electronics and 3D markets in China also for -- in the spring of next year. So you have -- we have a slide presentation where -- not on this one, but on the summer one, where we show our CapEx in the U.S. and Asia and some of them will start in 2019. I think we should have a decent growth in '19, but it's too early to predict that because, once again, it will depend on which policy we follow depending on what is the evolution of the oil price. But what is clear is that, in this world of high raw material, we have a priority, which is really to recover fully our raw material input. And I think we have done a good job this year on that. With regard to the acrylic acid, so if I look region by region, I would say you have U.S., you have above mid-cycle, so quite okay. Europe is around mid-cycle. It's a bit below, not far, and should continue to improve. And China, it's at the bottom. This is why we were able, I'm sure you have seen that in the press release, we were able to seize this is quite good opportunity for a modest price to buy the remaining part of our Sunke joint venture. So clearly the right time. This is intermediate product. You make the best deal when you buy them in low conditions. But if I look forward, we still think that we will sooner return to normalized conditions. So if, following your question, normalize condition, reinvestment point, I don't know because, in fact, I've seen the reinvestment point is higher now, significant period than it was in a year's time. So certainly, you need more than mid-cycle condition to justify your reinvestment. And we believe that with the base of Arkema, it's quite competitive in terms of cost structure, investment cost structure that we have today. So we are in quite well position to benefit from the progressive, gradual improvement of the acrylic acid unit margin. So maybe to make the story short, I think there is upside in acrylics, which again should compensate what we could lose in the MMA. And altogether, we should more or less improvise.

[Georgina Iwamoto, Associate]

Sorry, Thierry, can I just ask a follow-up on the acrylic acid? You're buying out the rest of the share in the Sunke joint venture. Can you just talk about the strategy behind that? Because it seems a little bit at odds with growing the specialty part of the portfolio.

[Thierry Le Hénaff, Chairman & CEO]

Yes. It's really opportunistic. I think -- you have to know that we have no issue. I think our strategy is still to increase significantly the specialty part, and we have the financial flexibility to do that. You look at the big CapEx project. They are in the specialty. Each time we make a bolt-on acquisitions, with this exception, we are in specialty. So there is no doubt about that. Here, just for really a very modest price, we are able to have the full site, which means that we are somewhat able to manage our capacity and for the long term to do what we want to do. And I think it's really the right move. So economically, you make the math, it's very easy. If you take a Chinese margin mid-cycle, so we are not in mid-cycle, it will take a few years. So you need a little bit of patience. But if you take mid-cycle, which is a way to measure it, it would -- the investment will mean a 2x EBITDA. So it's quite reasonable. So it's more opportunistic and strategic. But at the end, it was really the right move and it would have been a pity not to catch the opportunity, so we did it. But it changed nothing about our long-term strategy, which is to deliver this increase of share of specialty in the whole of our portfolio. Keep in mind that we are 30-70 intermediates and specialty. And we -- the 70% of specialty, we want it to grow 80% as soon as possible. So nothing has changed.

[Operator]

We have the next question from Mr. Patrick Lambert from Raymond James.

[Patrick Gerard Jean Lambert, Research Analyst]

Just first one, going back to Sunke, can you remind us exactly what will be the impact on reporting numbers? I think now post, of course, the acquisition, I think the 480 kilotons will be fully consolidated. If you could go a bit more in details of what will be the big difference between today and tomorrow in terms of reporting. First question. Second question, always coming back on the HPM margins and basically the split between HPM -- sorry, Technical Polymers and adhesives in particular. Is it fair to say that most of the drop of the EBITDA margin, 50 basis points versus last year, is mostly due to adhesives margin, meaning that the Technical Polymers did maintain their high level we've seen so far? And finally, a quick one on China in particular. Could you comment on Arkema China, how it has been developing in Q3 in terms of key end use and -- yes, that's it.

[Thierry Le Hénaff, Chairman & CEO]

Okay. Thank you, Patrick. So I will start with China, it's easy. It doesn't mean the other ones are not easy, but China is even easier. So China has been a good Q3 for Arkema. So we have continued to develop well. As you know, our focus on China is mostly on specialty high-value products and we still see a good momentum. So I know there are questions about automotive, but we are not a big supplier of automotive in China. There are questions about construction, but we are not directly such a big supplier in construction. We are more focused on mega trends and also on air conditioning through Fluorogases, which is doing well in China. So overall, we have quite a diversified portfolio in China and our profitability in Q3 was quite okay. So I know that some -- are some specific queries on China, but for the time being, that's the level of Arkema. We still see an okay situation and we see a normal momentum. So we have not any specific concern, recognizing that China is, by definition, volatile, that you can have some weakness even there on this end market. But at the end, this is one of the strengths of Arkema. We are positioned on different end markets and we manage well of our Chinese position. With regard to Sunke, to start with your first question, today, we consolidated the joint operations, so at 50%. And we consolidate 100% from the closing, which take a certain number of months. So when it's closed, we'll consolidate 100%. Okay, for the time being, profitability is low, as you know, but this is also why we had this opportunity. But clearly, when it will be a mid-cycle condition, it would be quite a good impact on Arkema, but should be a bit patient. With regard to High Performance Materials margin, don't forget that we increase prices step by step every quarter. And that, by definition, for the same margin in absolute terms, you have addition because the pricing is higher. So you have a little bit of that. Secondly, as you remember, we commented that for molecular sieves, which is high margin, the full year would be stronger, that with the strong positioning on the first quarter. So by difference, the second, third and fourth quarter are low in molecular sieves, so it has also an impact compared to last year on the third quarter margin. It's a little bit specific, but it's a sum of, as usual, different impacts. And the third one is with regard to Bostik actually, we now finally, compared to last year, in terms of margin percentage. So we have catch-up -- caught up with margin. So it's not so much a [ deficit ]. It's more the first 2 points. But overall, we resist well. I think it's the third quarter and seasonality is a little bit weaker compared to the Q2. And we are 16.4% versus 16.9%. We resist well.

[Operator]

We have another question from Emmanuel Matot.

[Emmanuel Matot, Analyst]

Emmanuel Matot for ODDO. Several questions from me, please. First, what will be the position of Arkema in China following the deal with Jurong? Would you have leadership position? Which type of market share? And what needs China to go back to mid-cycle condition? And how long it would take coming to you?

[Thierry Le Hénaff, Chairman & CEO]

The second one, sorry? Second question is what? Sorry.

[Emmanuel Matot, Analyst]

Is about China, actually what needs that market to go back to mid-cycle conditions and how long it could take coming to you? Can we go back also on High Performance Materials? If raw material prices are stabilizing, could you quantify the level of EBITDA margin you should be in a position to recover in the next 12 months in that division? That would be helpful. And maybe a word, Thierry, on M&A. You still have some acquisitions to do to reach your 2020 targets. Would you say you are well on track or maybe late due to lots of competition from high-grade equities?

[Thierry Le Hénaff, Chairman & CEO]

Okay, Emmanuel. So in China, we must be among the first 2 in acrylic acid, I would say. Certainly, #2. If not #2, then #1. So let's say #2 to say something. It already difficulty to know exactly in China unless transparent in the other region. When is this market to go to mid-cycle condition this time? There has not been any new announcement for how many years in China. The one which has come recently, but it's for, I think, 2023, something like that, which is a big one, so we have time. And the market is growing at 5% a year, 5% to 6% a year, EBIT only. So I think just a matter of time, so how much time is already difficult to know. We have done that in the U.S. in the -- when we were in 2009, 2010, where the market was depressed and then it came very high very quickly. So it's not scientific, but I see it's a matter of a couple of years, I would say. A couple of years should be [ should develop ]. There will still be volatility in China. By definition, it's more volatile than the rest of the world by, let's say, a couple of years, a bit more. But I think it's -- it will go to mid-cycle condition. And then you will see that because we invested at very low cost, we'll be in quite good position. With regard to M&A, no, I think M&A, I believe we are on track. Or if we are not on track, I think we are pushing -- we are looking at redevelopment size. And as you know, you don't need a lot to do what you need to do. So we are not concerned about that. We find our opportunities. We are studying regularly. But it's clear and you know us. We are very selective. We want to deliver value through our acquisition. It has been our reputation, so we'll continue to do so. So it's clear that because multiples are a bit high these days, you have to be selective. You have to buy where you believe you have strong synergies and this is what we'll be doing. So we prefer to take more time than -- and make good deals than the other way. But I would not say that we are late. I think we are on the right track.

[Emmanuel Matot, Analyst]

Okay. Maybe a word on High Performance Materials, how long it will take to recover EBITDA margin from, yes, raw materials price increase that we have seen before.

[Thierry Le Hénaff, Chairman & CEO]

I think that it depends what your price will be for next year again. So it's not -- but let's say that raw materials [ stabilize ] or it's still up until mid-next year, I would say.

[Emmanuel Matot, Analyst]

What will this level of EBITDA margin you should be able to recover if prices are stabilizing regarding raw materials?

[Thierry Le Hénaff, Chairman & CEO]

I see where we have loss is just adhesives. It's not -- on the rest of HPM, we have recovered already, okay? So it's only adhesives. And on adhesives, as I mentioned, we lost a bit more than 1 point. I think I said that last time in the conf call. So let's say that we are a bit more than 1 point to gain back on adhesives, okay, and it should be done for mid-next year, latest.

[Operator]

We have another question from Mr. Alex Stewart from Barclays.

[James Alexander Stewart, Chemicals Analyst]

The Sunke acquisition is an extremely good value, but you are now -- you now have a quite material net long position in acrylic acid and acrylates. Does the acquisition of this 240,000 tons expedite your plans to cover that long position, either through downstream coatings or perhaps through adhesives? Or are you happy, given the point in the cycle, to stay in that long? Any ideas of how your plans might change around that would be very helpful.

[Thierry Le Hénaff, Chairman & CEO]

So it's a good question. And the answer is that we don't change our target. It's just -- as you know, it's a mid-long-term target. Maybe it's a paradox, but okay, we get more capacity, but we have more flexibility to do what we want to do with the capacity, if you see what I mean. So the fact that now we have [ Luna ] makes us more flexible in terms of what we can do mid-long term. So it doesn't change our plan. And again, it's an opportunity and would have been a pity to miss. So thank you for saying that it's a good value. I think it's a good value investment. And -- but it doesn't change. We still want to be more balanced between the upstream of acrylic and the downstream. And our strategy is really more on clearly downstream on the high-value performance coating, which I believe is part of the DNA of Arkema.

[James Alexander Stewart, Chemicals Analyst]

It sounds like your partner would have sold their half less than the build cost, which is unusual. They must have been very desperate to move out of acrylic acid. Is there anything you can comment on regarding their incentives and their motives?

[Thierry Le Hénaff, Chairman & CEO]

As you know, we do not comment on the spirit of partner. What is clear is that it's a matter of opportunity also for them, where we can reinvest their money, where they prefer to have put their money. So I think it's a time when we have combination of 2 things. It's low condition for the acrylic acid clearly. And the second thing from them is certainly an opportunity to reinvest their money in places where they believe makes more value for them with their strategy, that's all, okay?

[Operator]

We have another question from Mr. Peter Clark from Societe Generale.

[Peter Anthony John Clark, Senior Analyst, Chemicals]

I still got 1 or 2, I think. Just effectively on the volume growth, you're emphasizing obviously price over volume in this environment. On Bostik, I mean, if I'm playing with the numbers, it doesn't look like you've got much volume again. I'm just wondering how much of bottom slicing is going on if there's significant bottom slicing going on in that business as you focus more on the price there? And obviously, I saw the announcement about the price increases you're trying to push through. And then on the pricing side, moving into Industrial Specialties and the Fluorogases, judging by the numbers, it looks like that was the strongest surge you saw in pricing. I know there's the gas effect as well perhaps on mix. Just if you could comment on the pricing situation you saw in the third quarter on the Fluorogases.

[Thierry Le Hénaff, Chairman & CEO]

Okay. So I start with the last point and I finish with the first one. For Industrial Specialties, our strategy seems to work well. And when you look at the evolution of the EBITDA, plus 11%, such is the word of today. Margin going from 25.1% to 25.5%. I think we are in quite good shape. And clearly, you have some places where we can improve by definition, which is the fluorogas. But also the MMA, where you cannot say, "Yes, we are very happy the MMA is at the peak and expect that people have more volume to grow." I think one goes with the other, okay? So I think that it's clear that we have limitations in volume in Industrial Specialties, one point being what you mentioned, which is the F-gas and fluorogas. But at the end, our strategy is right, looking at the numbers. With regard to HPM, I think Bostik is like the rest of HPM. I think growth is limited by the fact that we decided to put more emphasis -- even more emphasis on pricing, but you have seen that on other companies which are positioned in the value chain like, I believe, for example, on paint companies have done the same. I think it's important at a certain point to recover high raw materials and it was the right moment to do it and we plan to do it again. Up until now, we have fully recovered.Okay, Peter. What I propose is you take maybe the last 2 questions, if I may.

[Operator]

We have one last question from Mr. David Symonds from JPMorgan.

[Chetan Udeshi, Research Analyst]

This is actually Chetan Udeshi from JPMorgan. Just 1 or 2 questions, on Technical Polymers, can you give us some rough sense of how, with the other key end markets, we should think about in terms of exposure of that business? That's number one question. The second question was on Fluorogases, where if I look at your pie chart that you gave, it does suggest that there was a big acceleration in growth in that business in Q3 to almost 20% sales growth versus first half, which was probably low to mid-single-digit growth. Can you comment on the reason for such a big acceleration in Q3, given that Kumho was actually talking about the base refrigerant prices coming down year-on-year?

[Thierry Le Hénaff, Chairman & CEO]

So with regard to Technical Polymers, so it's very diversified in terms of end market. But just to give you a few names, so Technical Polymers, again for everyone, it's polyamide 11, polyamide 12, Pebax and PVDF mostly for some other high-value polymer, but this is all the big ones. So we supply [ the total ] market, consumer electronic, sport, bottles of cola, packaging, cosmetics, automotive, oil and gas. So it's very diversified. And growth is mostly driven by innovation, okay, but you have sensitivity to GDP by definition. So typically, GDP plus business. And this is where we invest a lot in terms of new capacity because we have been, in fact, caught by our success. And on certain product line, like PA11, we are nearly oversold. So we manage the mix. But overall, these are the key end markets. And I think, long term, it will be -- it will continue to grow significantly for Arkema following our expansion. With regard to fluorogas, I was surprised by your comment because we are really in the continuity of the previous quarter. So we don't see any acceleration. It's a volatile market when you look at region by region and product by product. So each company can have a different comment, depending on where they are positioned. But with regard to Arkema, I would say that we don't see any discontinuity compared to what it has been. So if you have question about the math and the numbers, don't hesitate to -- Sophie, she will give you the exact answer, okay? But we don't see this acceleration this year. More stability.Okay. What I propose now is just to close. I would like to thank you very much for your attention. And I think we have covered a lot of ground together. And again, we are confident to deliver our full year guidance. Thank you again. Bye-bye.

[Operator]

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