Thierry Le Hénaff reviews the Group’s strong performance in 2019, and discusses the start of 2020, which has been marked by an unprecedented global crisis.
This exceptional situation has highlighted the agility of Arkema’s workforce and the Group’s financial solidity. Looking beyond the current year, Thierry Le Hénaff has confidence in the next stage of the Group’s development, which was presented to investors at the recent Strategic Update, and in Arkema’s vision of becoming fully focused on Specialty Materials by 2024
2020 has been marked by the exceptional context of Covid-19. How have you managed this situation?
This crisis is truly unprecedented, and we had to act quickly while continuing to adapt to the changing situation. In these troubled times, Arkema’s immediate priority has been to put in place the necessary health and safety measures to protect the Group’s employees, and also to support governments in order to limit the spread of the virus, paying particular attention to the most vulnerable people.
"I have been impressed by the commitment and professionalism of our people around the world."
Internally, we have put in place strict and coherent procedures in line with the requirements in each country. We have stepped up measures to reduce exposure and face-to-face contact, and we have limited site access to essential staff only, with strict safety and disinfection measures in place. We have also ensured that protective measures and social distancing are being respected, and have moved to remote working wherever possible.
The Executive Committee holds a daily video conference to discuss the running of the Group, define new initiatives, and keep up to date with the situation in this rapidly changing context. We are now busy preparing for the second quarter, which could be more complicated for businesses in terms of demand.
I have been impressed by the commitment and professionalism of our people around the world. The Group’s values are essential in this context. Solidarity is one of Arkema’s four key values, and we are demonstrating it very clearly in the current situation.
What have the impacts of the crisis been on the ground?
Thanks to the efforts of Arkema’s employees, we have been able to maintain our operations wherever possible around the world and serve our clients in conditions that are often complex. Many of our products are essential to downstream industries and the economies of countries in which we operate.
We have also responded to high demand from our clients for several of our products such as PMMA (acrylic glass) sheets to protect checkout staff in supermarkets, PVDF to make protective masks, and molecular sieves for medical respirators. The number of examples increases every week and makes our expertise particularly relevant. We are proud to contribute to the fight against Covid-19. We also quickly put in place systems to produce large volumes of alcohol sanitizer gel in France, and to a lesser extent in the United States. This socially responsible effort has been possible thanks to the rapid response and expertise of our teams.
How could this exceptional situation affect the Group’s financial health?
The crisis, which started off being about global health, has rapidly turned into a full economic crisis with a steep decline in demand in many sectors such as automobiles and construction, and with a real lack of visibility.
"In the current context, our responsiveness has already been a key element, and will continue to be so."
Fortunately, the Group is solid and prepared for this situation, although we will require a great deal of effort internally during this time. Our sound management in the past, our healthy balance sheet, our technological expertise, our commercial presence, and our progress in recent years are all strengths that mean we can look ahead with great caution and concern, of course, but also with confidence. Our diversified presence on many end markets gives us greater protection than businesses that depend on one or two segments.
In the current context, our responsiveness has already been a key element, and will continue to be so. It is essential that we adapt our inventory, our operational spending, and our investments, intelligently and determinedly and without delay. As part of our responsible approach, we must also start to prepare for life after the crisis and to consider the way we operate, particularly as lockdown eases.
Looking back at 2019, did Arkema perform well again?
2019 feels like a long time ago in the circumstances, but it is important to review it.
The macroeconomic context was less buoyant in 2019 than in 2018. Our revenue totaled €8.7 billion, largely in line with the previous year, and EBITDA reached €1,457 million, comparable with the record performance of the previous year. Cash generation remained very solid and reached a historical high, with free cash flow of €667 million, a significant rise, and an operating-cash-flow-to-EBITDA ratio of 52%.
This financial performance reflects the Group’s solidity and resilience in an economic environment that was already being affected by a slowdown in certain key end markets.
Elle confirme également la qualité de notre portefeuille d’activités et le bien-fondé de notre stratégie de transformation vers les spécialités. Ces lignes de produits ont vu leur EBITDA progresser de 13 % en 2019. Elles ont ainsi pris le relais des activités Intermédiaires globalement en recul notamment du fait des conditions de marché difficiles dans les Gaz Fluorés.
It also confirms the quality of our business portfolio and the soundness of our strategy to move towards specialties. These product lines registered a 13% increase in EBITDA in 2019. They have overtaken the Intermediates businesses, which were down overall, notably due to difficult market conditions in fluorogases.
Our performance also reflects the relevance of our strategy and the efforts made by Arkema’s teams to adapt to the volatility of the macroeconomic environment.
At the beginning of 2020, Arkema defined an ambitious new road map for 2024. What are its main themes?
Since Arkema was founded, we have always had a clear vision of what we wanted to become: A leader in Specialty Materials. Starting with the spin-off in 2006, we transformed our Group, altering our business portfolio, making our organizational structure more effective and competitive, and focusing our innovation on sustainable development.
In April 2020, we presented this new Arkema at a meeting with investors – a pure player in Specialty Materials, worth €10 to €11 billion, with a simplified, resilient portfolio focused on sustainable solutions. It is a clear vision, an ambitious project, and an important source of value for all our stakeholders.
In our new position, we will be better placed to offer solutions to fulfill the strong demand for new materials in mobility, urbanization, and environmental protection, and new technologies such as 3D printing. Our clients need high-tech, lightweight, bio-based, and recyclable materials. We can supply them thanks to our areas of expertise in materials science.
We have structured these areas of expertise, including glues, substitution, and lightening and protecting materials, into three coherent, complementary platforms for growth: Adhesives, Advanced Materials, and Coating Solutions. Together, these three segments make up Specialty Materials, and define the Group’s medium-term profile. Our vision is also based on a strategic review of our Intermediates segment, where we are considering a number of disposals and partnerships.
The combination of these three Specialty Materials platforms is unique in the chemicals industry. It allows us to generate significant synergies in innovation, commercial opportunities, and operational efficiency. It also gives us an exceptional capacity to serve our clients in growth markets.
By basing our innovation on key sustainability priorities, Arkema is focusing on supplying its clients in the field of lightweight materials, new energies, water, and bio-based products. This policy allows us to contribute to the Sustainable Development Goals defined by the United Nations and to respond to major present and future challenges, including population growth, climate change, and the scarcity of natural resources.
In fact, Arkema has been committed to the principle of responsible manufacturing since it was founded, and prioritizes the health and safety of its employees, environmental performance, the reliability of its industrial facilities, and open communication with our stakeholders.
Thanks to the progress the Group has already made in environmental issues since 2012, we announced at the start of the year our ambitious climate plan for 2030 to help keep the global temperature rise well below 2°C, in line with the Paris Agreement. Arkema has set a target to reduce its absolute greenhouse gas emissions by 38% between 2015 and 2030, and has also defined new environmental objectives for emissions into the air and water, as well as for energy consumption.
These commitments, as well as the progress achieved by increasing the proportion of women among its directors, is helping Arkema consolidate its position among businesses that are committed to and perform well in matters of corporate social responsibility.