Arkema: Full-Year 2021 Results

COLOMBES, France–(BUSINESS WIRE)–Regulatory News:

Arkema (Paris:AKE):

Excellent financial performance in 2021, reflecting accelerating demand for innovative and sustainable materials, as well as the Group’s reactivity in a demanding and volatile operating context

• Group sales of €9.5 billion, up by 25.9% compared with 2020 at constant scope and currency:
  • Growth in volumes of +7.3%, driven notably by robust demand for sustainable solutions with high technological content, particularly in batteries, 3D printing, consumer goods and more environmentally friendly paints
  • Increase in selling prices of 18.6% over the year, reflecting the Group’s initiatives to offset strong raw materials and energy inflation, an improved product mix, as well as the tightness of upstream acrylics
• EBITDA at historic high of €1,727 million, up by 46.1% compared with 2020, and EBITDA margin at 18.1%, in an environment marked by operational disruptions and high raw materials and energy costs:
  • Excellent performance of Specialty Materials, up strongly in each of the segments, with EBITDA of €1,503 million (€1,018 million in 2020) and EBITDA margin of 18.5%
  • Increase in EBITDA of Intermediates (€316 million vs. €231 million in 2020), driven by favorable market conditions in acrylics in Asia and despite the negative scope effect related to the PMMA and Functional Polyolefins divestments
• Adjusted net income multiplied by 2.3 to €896 million, representing €11.88 per share (€5.11 in 2020)
• Recurring cash flow stable at €756 million (€762 million in 2020) and net debt down sharply to €1,177 million, including €700 million in hybrid bonds (net debt of €1,910 million at end-2020), representing 0.7x 2021 EBITDA
• Proposed dividend of €3.0 per share (€2.5 in 2020)

Strengthening of the Specialty Materials platform in line with the 2024 ambition

• Major steps taken to refocus on Specialty Materials, which represent close to 90% of 2021 pro forma sales ⁽¹⁾, with the finalization of the PMMA divestment and the proposed acquisition of Ashland’s performance adhesives business
• Numerous customer partnerships and targeted capacity increase projects to support the Group’s sustainable growth strategy, particularly in bio-based products, materials lightweighting, clean mobility, new energies, electronics and more environmentally friendly coatings

Confidence of the Group in the outlook for 2022

• Continued implementation of the Group’s strategy, in particular with the closing of the Ashland performance adhesives acquisition, the start-up at mid-year of the PA11 plant in Singapore and the hydrofluoric acid plant in the United States, as well as the strengthening of innovation and targeted investments to support our organic growth
• In 2022, in a global environment that should remain volatile, the Group aims, at constant scope ⁽²⁾, to achieve a Specialty Materials’ EBITDA comparable to the record high of 2021
• 2024 targets fully supported by the level of performance in 2021 and the significant progress made in the execution of the strategic roadmap

Following Arkema’s Board of Directors’ meeting, held on 23 February 2022 to approve the Group’s consolidated financial statements for 2021, Chairman and CEO Thierry Le Hénaff said:

“I would particularly like to thank Arkema’s employees, who through their commitment and initiatives, enabled the Group to reach an excellent financial performance in 2021 in a demanding operating context, and to successfully complete a number of important organic growth and portfolio management projects. Arkema’s growth was driven by increasingly strong demand for high performance solutions that address challenges linked to sustainable megatrends.

Moreover, our strategy goes hand in hand with demanding CSR commitments which are rooted in the company’s values. After a year marked by Arkema’s inclusion in the CAC 40 ESG index and by the third place achieved in the ‘Chemicals’ category of the DJSI World index, we are happy to have been certified as a Top Employer 2022 in four countries, which account for two-thirds of our employees and recruitments worldwide.

2022 will mark another important step forward in our ambition to become a pure Specialty Materials player. The acquisition of Ashland’s adhesives business is expected to close shortly, and will be followed by the start-up of our two major projects, namely, the bio-based polyamide 11 plant in Singapore and the production of hydrofluoric acid in the United States. Moreover, we have never identified so many innovation opportunities in areas with high technological content. Thanks to our geographic positioning, the intimacy developed with our customers and our unique expertise centered around materials science, I believe Arkema is very well positioned to seize these opportunities.”

KEY FIGURES FOR 2021

in millions of euros		2021		2020		Change
Sales		9,519		7,884		+20.7%
EBITDA		1,727		1,182		+46.1%
Specialty Materials		1,503		1,018		+47.6%
Intermediates		316		231		+36.8%
Corporate		-92		-67
EBITDA margin		18.1%		15.0%
Specialty Materials		18.5%		15.8%
Intermediates		22.9%		16.2%
Recurring operating income (REBIT)		1,184		619		+91.3%
REBIT margin		12.4%		7.9%
Adjusted net income		896		391		+129.2%
Adjusted net income per share (in €)		11.88		5.11		+132.5%
Recurring cash flow		756		762		-0.8%
Free cash flow		479		651		-26.4%
Net debt including hybrid bonds		1,177		1,910

2021 BUSINESS PERFORMANCE

At €9,519 million, sales were up 20.7% compared with the prior year, and up 25.9% at constant scope and currency. In a market environment that recovered significantly after 2020, a year marked by a health and economic crisis, volumes rose by 7.3%, with the Group leveraging the acceleration of demand for high performance, sustainable materials. Thus, Arkema benefited from its cutting-edge innovation and its positioning on solutions that have a high technological content or that are more environmentally friendly in the battery, consumer goods, decorative paints, electronics and 3D printing markets. Certain markets which are more minor for Arkema like oil & gas and paper were down year-on-year, as was the automotive sector, impacted by chip shortages. The price effect came in at +18.6%, reflecting both the adaptation of selling prices throughout the year in the face of high raw materials, energy and logistics cost inflation, and much more favorable market conditions in upstream acrylics relative to the low level of 2020. The 4.1% negative scope effect relates to the divestments of PMMA, finalized on 3 May 2021, and Functional Polyolefins, completed in June 2020, which were partly offset by acquisitions in Specialty Materials. The currency effect was limited over the year (-1.1%).

The share of Specialty Materials increased to 85.5% of total Group sales in 2021 (82% in 2020). Lastly, the evolution in the geographic breakdown of sales reflects the growing importance of Asia, as well as the impact of logistics disruptions and the divestment of PMMA in the United States. Accordingly, North America accounted for 31% of Group sales in 2021 versus 33% in 2020, Asia and the rest of the world represented 33% versus 31% in 2020, and Europe remained stable at 36%.

The Group’s EBITDA rose by 46.1% year-on-year to €1,727 million – a historic high – despite a negative scope effect of around €75 million, mainly related to divestments in Intermediates. All segments reported a significant improvement in their results, reflecting higher volumes in attractive markets, the Group’s capacity to pass on higher raw materials and energy costs, the shift in the product mix toward higher value-added solutions and favorable market conditions in upstream acrylics.

In this predominantly favorable environment, the EBITDA margin improved by more than 300 bps compared with 2020 to reach its historic high at 18.1%.

Recurring operating income (REBIT) was up by more than 90% to €1,184 million, and the REBIT margin improved by 450 bps to 12.4%. Recurring depreciation and amortization amounted to €543 million, down €20 million year-on-year, essentially due to the divestment of PMMA.

The financial result represented a net expense of €56 million, down €29 million compared with 2020. This year-on-year change is primarily due to a more favorable interest rate on the portion of the Group’s debt swapped into US dollars and, to a lesser extent, to the refinancing, at favorable market conditions, of the €480 million senior bond that matured in April 2020.

Excluding exceptional items, the Group’s tax rate amounted to 20% of REBIT in 2021. In 2022, the tax rate excluding exceptional items is expected to amount to around 21% of REBIT.

Adjusted net income, at €896 million (or €11.88 per share), more than doubled versus 2020.

CASH FLOWS AND NET DEBT AT 31 DECEMBER 2021

Coming in at €756 million in 2021, recurring cash flow was stable year-on-year (€762 million in 2020), with the Group’s improved operating performance in 2021 offset by the change in working capital (€319 million outflow in 2021 in the context of a strong business recovery and significant inflation in raw materials, after a decrease in working capital in 2020 following the pandemic). However, working capital remained well controlled at 12.7% of annual sales excluding the PMMA business (11.8% at end-December 2020 and 13.8% at end-December 2019), and below its normative level of around 14%. Recurring cash flow also includes recurring capital expenditure of €506 million, or 5.3% of Group sales.

The EBITDA to cash conversion rate, now calculated based on recurring cash flow, was 43.8%, in line with the Group’s long-term objective of 40%.

Free cash flow came to €479 million for the year (€651 million in 2020), and was mainly impacted by the ramp-up of exceptional capital expenditure corresponding to the bio-based polyamides project in Asia and the hydrofluoric acid supply project with Nutrien in the United States (€252 million in 2021 compared with €140 million in 2020). For the year as a whole, recurring and exceptional capital expenditure amounted to €758 million, in line with the Group’s guidance of €750 million. In 2022, Arkema estimates that recurring capital expenditure should come to around 5.5% of Group sales and that the ongoing exceptional capital expenditure should come to an end with an amount of around €130 million.

Free cash flow in 2021 also included a non-recurring cash outflow of €25 million, mainly corresponding to restructuring costs and the consequences of winter storm Uri in the United States.

Net cash flow from portfolio management operations amounted to €909 million in 2021. It mainly included proceeds from the divestments of PMMA and the epoxides businesses, as well as the bolt-on acquisitions of Poliplas, Edge Adhesives Texas and Agiplast. In 2020, this figure came to €6 million and notably included the divestment of the Functional Polyolefins business.

Lastly, cash flow from financing activities represented a net outflow of €652 million for the year. In particular, this figure includes an outflow of €329 million corresponding to the cost of share buybacks, notably those carried out under the €300 million buyback program announced in May 2021 and completed on 24 November, payment of the 2020 dividend of €2.5 per share for a total amount of €191 million, and €15 million in interest paid on hybrid bonds.

Net debt including hybrid bonds fell sharply to stand at €1,177 million versus €1,910 million at end-2020, and the net debt (including hybrid bonds) to last-twelve-months EBITDA ratio stood at 0.7x. Including the finalization of the acquisition of Ashland’s adhesives, this ratio should remain below 2x annual EBITDA in 2022.

In line with the policy of gradually increasing the dividend, the Board of Directors has decided that, at the annual general meeting of 19 May 2022, it will recommend a dividend payment of €3.0 per share in respect of 2021 (vs. €2.5 per share in respect of 2020), to be paid entirely in cash. Shares will be traded ex-dividend on 23 May 2022 and the dividend will be paid as from 25 May 2022.

CONTINUED PROGRESS IN CSR

To reinforce its sustainable offering commitment, the Group started some years ago to assess its portfolio in light of sustainability criteria and, in 2020, set itself the objective of increasing to 65% the share of its sales that significantly contribute to the United Nations Sustainable Development Goals (SDGs) by 2030 (ImpACT+ objective ⁽³⁾). At end-2021, the Group increased the share of sales assessed to 85%, compared with 72% at end-2020, and based on this new scope, the share of sales that significantly contribute to the SDGs reached 51% (vs. 50% at end-2020).

Moreover, in order to accelerate its transition toward a circular economy, the Group intends to significantly strengthen the life-cycle analysis of its products, which enables to assess their environmental impact. Thus, the Group aims to increase to 50% the share of sales assessed by a life-cycle analysis by end-2024 vs. 27% at end-2021.

In terms of climate and the environment, the Group achieved further progress in its key indicators in 2021. In particular, its greenhouse gas emissions ⁽⁴⁾ were down significantly, falling by 14% compared with 2020 and by 34% compared with the baseline year of 2015. In a context of strongly rising production volumes, this significant reduction reflects the pro-active steps taken by the Group as part of its climate plan roll-out.

Regarding safety, the Group confirmed the previous year’s very solid level with a TRIR ⁽⁵⁾ of 1.0, and moreover substantially improved its PSER ⁽⁶⁾ to 3.1 in 2021, compared with 4.0 in 2020. Arkema aims to further improve these results and targets to achieve in 2030 a TRIR of 0.8 and a PSER of 2.0.

Moreover, in line with its commitment to equal opportunity and in recognition of the contribution of diversity to company performance, the Group is continuing to increase the share of women in senior management and executive positions, with this figure reaching 24% in 2021 (vs. 23% in 2020), and targets 26% in 2024.

Lastly, Arkema improved its ranking in the DJSI World index, rising to 3^rd place in the “Chemicals” category in 2021 compared with 6^th place in 2020, and in 2021 joined the new CAC 40^® ESG index, which lists the 40 companies that have demonstrated environmental, social and governance (ESG) best practices. The Group has thus been rewarded for its sustainability performance and for integrating its CSR commitment into its development strategy, which will create long-term value.

2021 PERFORMANCE BY SEGMENT

ADHESIVE SOLUTIONS (24% OF TOTAL GROUP SALES)

in millions of euros		2021		2020		Change
Sales		2,278		1,996		+14.1%
EBITDA		316		261		+21.1%
EBITDA margin		13.9%		13.1%
Recurring operating income (REBIT)		250		198		+26.3%
REBIT margin		11.0%		9.9%

Sales in the Adhesive Solutions segment totaled €2,278 million, up 14.1% compared with 2020. Volumes grew by 5.4%, benefiting from robust demand in the construction and DIY market, as well as the post-Covid business recovery in high performance industrial applications, but they were impacted in the second half of the year by shortages of several important raw materials. The price effect, which grew constantly throughout the year, was a positive 5.4% and reflects the Group’s ongoing actions to pass on high inflation in raw materials. The 4.1% positive scope effect corresponds to the integration of Fixatti, Ideal Work, Poliplas and Edge Adhesives Texas and the currency effect was a negative 0.8%.

EBITDA for the segment rose by 21.1% compared with 2020 to €316 million, driven by positive sales momentum, the shift in the product mix toward higher value-added applications and the contribution of acquisitions, with the impact of higher raw materials costs progressively offset by price increase initiatives. In this context, the EBITDA margin expanded by 80 bps compared with 2020 to 13.9%, in line with the guidance of 14% announced in early 2021, which constitutes a good performance, particularly given the mechanical dilutive impact of price increases on this ratio of around 100 bps for the year.

ADVANCED MATERIALS (32.5% OF TOTAL GROUP SALES)

in millions of euros		2021		2020		Change
Sales		3,087		2,527		+22.2%
EBITDA		662		496		+33.5%
EBITDA margin		21.4%		19.6%
Recurring operating income (REBIT)		408		245		+66.5%
REBIT margin		13.2%		9.7%

Sales in the Advanced Materials segment rose by a strong 22.2% compared with 2020 to €3,087 million. Volumes were up by a significant 10.3% compared with the prior year, driven by High Performance Polymers, which benefited from a strong dynamic in most end markets, despite a decline in the automotive sector, and from the acceleration in demand for high performance, sustainable solutions, particularly in batteries, bio-based consumer goods, sports and water filtration. Volume growth was more moderate in Performance Additives, where demand remained lower in the oil & gas and paper markets. The 12.8% increase in prices reflects both the actions taken to increase selling prices in the context of marked raw materials, energy and logistics cost inflation, and product mix improvement toward high performance, higher value-added solutions. The scope effect was a positive 0.2%, corresponding to the integration of Agiplast, finalized on 1 June 2021, and the currency effect was a negative 1.1%.

In this context, the segment’s EBITDA amounted to €662 million, up by 33.5% year-on-year, supported notably by the excellent year of High Performance Polymers. The EBITDA margin increased to 21.4%, compared with 19.6% in 2020.

COATING SOLUTIONS (29% OF TOTAL GROUP SALES)

in millions of euros		2021		2020		Change
Sales		2,746		1,911		+43.7%
EBITDA		525		261		+101.1%
EBITDA margin		19.1%		13.7%
Recurring operating income (REBIT)		407		142		+186.6%
REBIT margin		14.8%		7.4%

Sales in the Coating Solutions segment were up sharply by 43.7% to €2,746 million. Volumes grew by 8.1%, driven by robust demand across all of the segment’s key markets, namely decorative paints, 3D printing, industrial coatings, graphic arts and electronics. The positive 37.6% price effect reflects the necessary price increases implemented for downstream products to offset very high raw materials and energy inflation, and the significant tightness of upstream acrylics. The currency effect reduced segment sales by 2.0%.

At €525 million, EBITDA doubled and the EBITDA margin reached the high level of 19.1% (13.7% in 2020), benefiting from the growth and product mix improvement linked to strong demand for more environmentally friendly solutions such as water-based and bio-based paints, powder coatings and UV-curable resins, as well as more favorable conditions in upstream acrylics.

INTERMEDIATES (14.5% OF TOTAL GROUP SALES)

in millions of euros		2021		2020		Change
Sales		1,378		1,425		-3.3%
EBITDA		316		231		+36.8%
EBITDA margin		22.9%		16.2%
Recurring operating income (REBIT)		219		109		+100.9%
REBIT margin		15.9%		7.6%

At €1,378 million, sales in the Intermediates segment were down 3.3% compared with the prior year, impacted by a negative scope effect of 29.1% corresponding to the PMMA divestment finalized in May 2021 and the Functional Polyolefins divestment on 1 June 2020. The positive 22.1% price effect was attributable to much more favorable market conditions for acrylics in Asia compared to the low level of the previous years, and to a solid performance in Fluorogases. Volumes rose by 3.6% over the year, driven by higher demand post-Covid, but held back in the second half for acrylics in Asia following Chinese authorities’ measures aimed at limiting energy consumption.

In this context of a buoyant market, and despite a negative scope effect of around €90 million, segment EBITDA increased by 36.8% to €316 million and the EBITDA margin improved to 22.9% (16.2% in 2020).

KEY FIGURES FOR FOURTH-QUARTER 2021

in millions of euros		Q4’21		Q4’20		Change
Sales		2,500		1,985		+25.9%
EBITDA		417		289		+44.3%
Specialty Materials		359		261		+37.5%
Adhesive Solutions		69		69		+0.0%
Advanced Materials		168		123		+36.6%
Coating Solutions		122		69		+76.8%
Intermediates		80		42		+90.5%
Corporate		-22		-14
EBITDA margin		16.7%		14.6%
Specialty Materials		16.5%		15.9%
Adhesive Solutions		11.9%		13.5%
Advanced Materials		19.2%		19.1%
Coating Solutions		16.8%		14.1%
Intermediates		25.6%		12.6%
Recurring operating income (REBIT)		273		144		+89.6%
REBIT margin		10.9%		7.3%
Adjusted net income		212		92		+130.4%
Adjusted net income per share (in €)		2.86		1.20		+138.3%
Recurring cash flow		222		180		+23.3%
Free cash flow		108		116		-6.9%

Group sales totaled €2,500 million, up 28.4% on Q4’20 at constant scope and currency. Volumes were down slightly (-0.5%), penalized notably by the lack of availability of numerous important raw materials in the Adhesive Solutions segment and weaker demand in Coating Solutions compared with the high prior-year comparison base. The solid growth in Advanced Materials offset lower volumes in those two segments. The 28.9% positive price effect was primarily attributable to the Group’s price increase policy to offset very strong raw materials, energy and logistics cost inflation, and to the tightness of upstream acrylics. The 5.9% negative scope effect reflects the divestment of PMMA, which was partly offset by the integration of acquisitions in Specialty Materials. The 3.4% positive currency effect was mainly linked to the appreciation of the US dollar against the euro.

Group EBITDA rose by 44.3% to €417 million despite a negative scope effect of more than €30 million, resulting mainly from the divestment of PMMA. This good performance was supported by the product mix improvement in Specialty Materials linked to the acceleration of demand for solutions that have a high technological content and are more environmentally friendly, as well as by the favorable market conditions in upstream acrylics. In this generally favorable environment, albeit disrupted by raw materials inflation and shortages, the EBITDA margin rose to a fourth-quarter record level of 16.7% (14.6% in Q4’20).

Sales in the Adhesive Solutions segment totaled €580 million, up 13.3% relative to fourth-quarter 2020. In a context of continuing good demand, volumes were impacted by key raw materials shortages from our suppliers and fell by 3.3% compared with the high comparison base of Q4’20. These pressures should fade away at the end of first-quarter 2022. The positive 11.5% price effect reflects the Group’s ongoing initiatives to pass on the very high raw materials inflation. The 2.8% positive scope effect corresponds to the integration of Poliplas and Edge Adhesives Texas and the currency effect was a positive 2.3%.

At €69 million, EBITDA for the segment was stable compared with the excellent performance of fourth-quarter 2020. The EBITDA margin came to 11.9% (13.5% for Q4’20), impacted in particular by the strong mechanical dilutive effect of price increases on this ratio.

In the continuity of third-quarter trends, sales in the Advanced Materials segment rose by a sharp 35.7% compared with Q4’20, coming in at €874 million. Driven by a favorable environment across most of the segment’s key markets – with the exception of the automotive and oil & gas sectors, which remained down – volumes grew by 4.2%, also supported by a continued very positive dynamic in batteries, bio-based materials, sports and water filtration. The 28.1% positive price effect reflects price increase initiatives and the product mix improvement in technological, high performance solutions with high added value. The Agiplast acquisition resulted in a 0.1% positive scope effect and the currency effect was a positive 3.3%.

With EBITDA of €168 million, up 36.6% compared with Q4’20, and an EBITDA margin of 19.2%, the segment once again delivered an excellent performance in the quarter.

Contacts

Investor relations
Béatrice Zilm +33 (0)1 49 00 75 58 [email protected]
Peter Farren +33 (0)1 49 00 73 12 [email protected]
Mathieu Briatta +33 (0)1 49 00 72 07 [email protected]
Caroline Chung +33 (0)1 49 00 74 37 [email protected]

Media
Gilles Galinier +33 (0)1 49 00 70 07 [email protected]
Véronique Obrecht +33 (0)1 49 00 88 41 [email protected]

Read full story here