© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the Arkema's Q2 2018 Results Conference Call. I will now hand over to Thierry Le Hénaff, CEO. Sir, please go ahead.
Thank you, very much. Good morning. Welcome to this conference call. With me today are Marie-José Donsion, our CFO; Thierry Lemonnier; and the IR team. As usual, we have posted on our website, in addition to the press release, a set of slides, which detail the second quarter performance. So I propose first to comment the set of results and then to answer your questions. As you have seen from the press release this morning, Arkema achieved another very strong performance with a record-high EBITDA in the quarter at EUR 430 million and up 8% year-on-year. This percentage is even more important when we restate at constant exchange rate. The increase year-on-year becomes quite significant at 12.5%. For the first time since our spin-off, and we are very proud about it, EBITDA exceeded EUR 400 million in the quarter, and this is the 15th consecutive quarter in which we delivered EBITDA growth. This remarkable and consistent performance, delivered quarter after quarter, confirms the strong momentum of the company as well as the quality and balance of this portfolio of product lines, with a combination of resilient and high value-added specialty businesses and the Thiochemicals chemical businesses delivering excellent returns, as you know. Achieved in a volatile macroenvironment, marked by a significant oil price rise and geopolitical tension in different parts of the world, these financial results underline the value of Arkema's long-term strategy, which aims at continuously reinforcing its profile through a 3-dimension growth strategy, including innovation focused on sustainability, targeted industrial investment in higher growth regions and bolt-on value-accretive acquisitions.Looking now more specifically at the second quarter results. I would like to extract a few highlights from the press release. First of all, we have again delivered a strong sales growth, with nearly 7% year-on-year growth at constant FX and scope of business. In the context of rising oil and raw materials, our ability to increase our prices was, of course, a major driver of this sales growth. Our pricing initiatives started, as you know, in 2016 and have developed continuously over the past quarters both in intermediate and specialty product lines in order to pass through the higher raw material costs. For the whole group, much to our satisfaction, our pricing power in the second quarter was fully positive. Within the ongoing and significant inflation of input costs, we knew it would, nevertheless, take more time to fully restore the margins of our specialty businesses. This is why we are glad to see that, in this second quarter, our actions are paying off and our margin in our specialty businesses match overall the level of last year as shown in the high-performance materials division figures. Nevertheless, we have still some way to go. For example, in [indiscernible] which is, as you know, the most downstream business of our businesses, to recover the full impact of raw material inflation, which started in 2016 for some raw materials. So this remains still a priority for the coming quarters. Second point, on volume, we continued to deliver solid year-on-year growth in high-performance materials. If we take into account the volume this quarter, where, as you know, we mentioned it in the previous conf call, temporarily impacted by strike at the SNCF, The French National Railway Company, which took place during the second quarter and affected some of our production and supply in France. More important, over the first half of the year, which is more relevant, volumes in HPM were 4.4% up on last year. Indeed, we continued to benefit from our strong innovation rise in Advanced Materials, for which we see strong demand and are really optimistic looking at the years to come. Demand for this solution is supported by structural trends with increasing needs for lighter materials, 3D printing, batteries, [indiscernible] consumer goods, sports, electronics. We should continue to see robust and consistent growth in this area over the coming years, supporting our significant organic investment plan for Advanced Materials presented at the Capital Market Day last year. Volume growth in Coating Solutions was also high at 9.2% compared to second quarter 2017, which you may remember was affected to a certain extent by a maintenance turnaround at our Clear Lake in the U.S. So point is EBITDA. At EUR 430 million, it is up 8% on last year's very strong baseline.This performance was achieved despite both the stronger euro, which represented an adverse EUR 18 million EBITDA position impact, and higher raw materials. Excluding the impact of currencies, EBITDA, as I mentioned at the beginning, would have increased by 12.6% against the 2Q last year. This excellent performance is driven by all 3 business divisions, which are each of them up year-on-year. EBITDA margin level is quite pleasing at 18.9% versus the ratio in last year 18.1%. This performance, as mentioned previously, certainly underlines a quite positive combination of pricing power, mix evolution, organic development and cost control. As for any peer, there are nuances in the analysis of the performance when you dig at the level of each product line, but overall, and for most of the product lines, this quarter demonstrates the strength of our portfolio and represents a lot of hard work and engagement for the 20,000 employees of Arkema.First point, and it's a very important point, is a very significant progression of our adjusted net income and adjusted EPS at plus 31%, which reflects both a higher EBITDA, stable G&A, a good control of financial expenses and the benefit of a lower tax rate, a combination of the new legislation in the U.S. and also our geographical mix. Before handing it over to Marie-José, I would like to remind you quickly a few highlights of the first half of the year. You have all the details in the financial report, so I will be brief. First, the performance in the 1H is also quite up with an EBITDA 8% up on last year, an EBITDA margin at 18.3% and adjusted EPS up 31% on last year. So we can say that after a very good start to the year in Q1, Arkema fully confirmed in the second quarter its strong momentum. This performance reports our confidence to achieve another excellent year in 2018. This is why we decided to upgrade our guidance for the full year to reflect this confidence despite the uncertainties linked to the macro and geopolitical environment. I propose to come back to this perspective in my conclusion. Secondly, we have been active in further implementing our strategy. As you know, we have continued to make bolt-on acquisitions in [ our business ], have integrated early January XL Brands in the U.S. Integration from my standpoint goes smoothly. They have delivered, over the first semester, a strong performance, which is [ probably ] synched for the future in the positive context of the U.S. construction market. We have also just announced this morning, you could see it, that we closed the acquisition of a new industrial adhesive business in Japan. It represents only EUR 30 million additional sales, but it will be a nice complement to Bostik's existing position in Japan. So you can see that step-by-step, we develop Bostik not only organically but by bolt-on acquisition we were committed to. Several investment projects were also announced in the first semester in line with our long-term strategy. We will expand our production capacities in Asia in specialty polyamide 12, with a startup expected mid-2020, and also in France, with specialty polyamide powders, with a startup expected earlier, which means next year. Both projects are part of our major investment plan in specialty polyamides and will help us support our customers' growth for new materials and solutions and sustainability. So as you can see, quite a busy and positive quarter implementing and delivering on our strategy. I propose now to hand it over to Marie-José for the details of the second quarter figures. Marie-José, this is to you.
Okay. Thank you, Thierry, and good morning, everyone. It's my pleasure to be with you today on my first call on Arkema results. So I'll take you through some additional details on the second quarter financials, starting with the sales bridge. The sales have been up 3% nominally, so including an adverse currency effect of minus 4% and a positive scope effect with the XL Brands integration. At constant ForEx and scope, revenues were up 6.7% at EUR 2.3 billion, driven by a 5.8% price effect, reflecting our actions to increase selling prices as well as good market conditions in the Intermediates business. Volumes were up close to 1%, with higher volumes in High Performance Materials and Coating Solutions offsetting lower volumes in Industrial Specialties and Fluorogases, in particular. If we spend a minute on the rest of the P&L, I'd like to emphasize that at EUR 430 million EBITDA is up 8% compared to an already strong quarter -- second quarter last year despite, as Thierry mentioned, the stronger euro. This increase is driven by strong demand in Advanced Materials, the smooth integration of bolt-on acquisitions in the adhesives, progressive pass-throughs of raw materials price increase and the very good performance on all 4 business lines in Industrial Specialties. The EBITDA margin reached 18.9% compared to the 18.1% last year. The recurring operating income amounted to EUR 380 million, up 11% on last year, and it includes a stable depreciation and amortization amount of EUR 112 million, which leads, basically, to a recurring EBIT margin at 14%. As you know, Arkema records minimal exceptional items. So on this quarter, they amounted to a bit less than EUR 10 million and relate mainly to the amortization of the reevaluated assets coming from Bostik, Den Braven and XL Brands acquisitions. For XL Brands, actually the allocation of the purchase price was finalized at the end of June, which resulted into the booking of EUR 100 million of intangible and tangible assets and in an annual EUR 8 million depreciation charge. The financial result is lower than last year thanks to the refinancing that we achieved in 2017 at a more favorable market condition. Taxes are down as well on last year at EUR 64 million compared to EUR 82 million on the second quarter of '17. The tax rate, including exceptional items, actually is at 21% on the recurring operating income, which is significantly lower than last year, where we were around 30%, and it mainly reflects the benefit from the tax reform, obviously, in the United States.Consequently, the net income is up 31% from last year at EUR 226 million, which is a bit below EUR 3 per share. I propose to look now at the performance of our 3 business divisions. So if we look at High Performance Materials, sales were up 4% from last year at constant scope and FX, with a 2.7% price effect reflecting ongoing actions to raise the selling prices. Volumes were up 1.5%, driven by a good demand and our innovation drive in Advanced Materials and despite, as Thierry mentioned, some impact from the French national railway company, which affected some productions in France. At EUR 177 million, EBITDA was up 2% on last year. We're seeing an all-time high in a quarter for this division. This is a strong performance, taking into account the stronger euro and higher raw material costs, and it reflects a particular good demand in Advanced Materials and the smooth integration of XL Brands division in Bostik. EBITDA margin is at 17.6% and is stable at a high level, with a growing benefit from our pricing actions to offset higher material costs and, notably, the additives and the technical polymers.In Industrial Specialties now, sales were up 5% at constant scope and FX. The positive close to 11% price effect reflects the implementation of the F-Gas regulation in Europe and continuing tight market conditions in the MMA/PMAA. A strong position in Thiochemicals and a favorable market conditions in China in hydrogen peroxide. Volumes are down 5.7% on lower selling quotas in Fluorogases in Europe and in the United States. EBITDA of the division is up 18.2%, and EBITDA margin progressed further, up 29%. Both trends were supported by all of the 4 business lines of the division.Finally, on Coating Solutions, sales were up 14% at constant scope and FX. Volumes are up 9% on the second quarter '17, which was impacted by a maintenance turnaround in acrylic monomers in the United States. The positive 5% effect reflects ongoing actions to raise selling prices across the entire acrylic chain, notably to pass through the strong increase in propylene prices over the quarter. Results of the divisions are solid, with EBITDA up 6%. They are construct -- contrasted region-by-region with performance very solid in the U.S., but still disappointing in China. Over the next quarters, unit margins in acrylic monomers should have [ grown with ] higher propylene costs and gradually improve. Looking at cash flow, finally, it's a positive at EUR 41 million for the quarter. It reflects the good profit generation as well as the high working capital utilization, which actually comes from both the higher activity and is also linked to usual seasonality at the end of June. It also includes actually higher CapEx in line with our EUR 550 million guidance for the recurring and exceptional CapEx over the year as well as a EUR 21 million loan granted to the employees as part the share capital increase reserved for employees. Working capital continues to be strictly managed, with a ratio of working capital on annual sales at 16.5% versus the low point of 15.5% at end of June '17, and also versus the 17.2% at the end of June '16. At EUR 1.372 billion, net debt is slightly up compared to end of March, following the payments of the EUR 176 million dividend in May. Taking into account also the capital increase from employees of EUR 50 million and the share buyback of around EUR 20 million. Balance sheet remains very solid with gearing well under control at 29%, and the net debt representing 0.9x the last 12 months EBITDA. So this concludes my comments, and I can now hand over to Thierry for the concluding remarks.
Thank you, Marie-José. I propose now to comment the outlook for the full year. Taking into account the start of the year, we want to confirm our confidence for the rest of the year. And if I need to upgrade our [indiscernible] objective, which was, as you know, was to increase EBITDA in 2018 compared to the excellent 2017 performance. As said earlier, the performance of the first half has been very pleasing and the current underlying conditions seem robust, even if volatile. And obviously in this uncertain world, as you know, and ask everyone to continue to monitor closely the macroeconomic and geopolitical development as well as the volatility of both raw material costs and currencies. As usual, in this context, we'll continue to focus on what we control. I mean, our internal drivers, including our strong innovation driving Advanced Materials, the integration of bolt-on acquisition in adhesives and a globally robust environment in our Intermediate Chemicals businesses. With regard to raw materials, we'll continue, as we have been doing in the recent quarters, to adapt our pricing policy, as I mentioned, as the beginning to recover full impact of higher input costs. Taking into account all these elements and the ones that Marie-José and myself mentioned before, in the first half of the year, we upgrade, as mentioned previously, our 2018 guidance. Assuming a continuity in the current macroeconomic environment, we now expect mid-single digit EBITDA growth compared to the excellent performance achieved in 2017. I wanted to thank you for your attention. But I wanted also to mention that it will be the last participation to a conf call of results by Thierry Lemonnier before his retirement at the end of the summer. So I wanted to thank him strongly for his invaluable contribution over the past 12 years, his loyalty, his engagement and what is key for a CFO, you know that very well, is reliability and financial skill. Most of you have been, since the spinoff, in contact with him at many occasions and had the opportunity to appreciate the strong competencies of Thierry. Now we are ready, together with Marie-José Donsion and Thierry Lemonnier, to answer your questions. Thank you for your attention again.
[Operator Instructions] The first question comes from Thomas Wrigglesworth from Citi.
Thierry, congratulations on your retirement. My 2 questions. You're implying just 1.5% growth in the second half EBITDA, a 5% EBITDA growth for the full year 2018. Is it just conservatism around the declines in MMA that drive that step down in the growth rate versus -- in the second half versus the first half? That's my first question. Second question is on Coating Solutions. Obviously good sales growth, but pulled through to EBITDA, I think, our calculating looks like around just 10% drop through of that sales growth to EBITDA. Could you unpack that a little bit for me? Why wasn't there better operating leverage to the high volume growth in Coating Solutions?
Okay. Thank you, Thomas. Thank you for your congrats, also. With regard to the guidance for the year. First of all, I think, in the EBITDA guidance -- I think this shows, first, confidence, confidence in our resilience. As you know, we compare to a very strong second semester last year, which was up EUR 90 million versus 2016. I'm sure, most of you have forgotten, but at that time, we had many questions about the sustainability of this very higher H2 2017. And the message we give is that we are going to be slightly up this very strong reference point. This is the first thing. Secondly, if you look at what it would mean for the full year, especially if you integrate, add back the impact of the [ FX ] which was formed on the first semester, it's a very strong growth for the full year, year-on-year. So what we see first is really confidence, is resilience, the fact that we [indiscernible] in this uncertain world confirms this confidence. So for us, it's really all positive, and it's also beneficial for you because you know that you can count on this level despite the fact that we compare to a very favorable 2H 2017. Once we have said that, as you know, at every year, we do our best, but it's very important that you have a point on which you can really build for your own forecast, and it was important for us to quantify what we could count on for the full year. With regard to Coating Solutions, first of all, we have 2 parts in Coating Solutions. We have the upstream, as you know, and the downstream. Because of the propylene raise, which has been quite significant and following the price, which has grown strongly, our downstream, more or less, without giving unrelated figures by business unit, our downstream has been rather stable in the second quarter versus last year, which means that the full increase of profitability of -- or nearly the full has been coming from the upstream. And if you look then on the upstream, which is the acrylics business unit, the EBITDA growth is double digit. So I think -- I know that for reasons that I don't fully understand, the consensus on this specific Coating Solutions was higher. But really, when I look at the performance, when I look at also all the [indiscernible] that we have last seen in the Chemical business, I think it's quite a decent performance for Coating Solutions. It's true that because of the propylene, you have, on the ratio of margin, some division. As you know, propylene price up, pricing up and then the ratio between the margin and the sales are -- is a bit below last year. But overall, I think it's a good performance. But with a -- from a regional standpoint, a little bit of contrast, where our U.S. is quite solid, Europe is not soft from its cycle and China, Asia is still disappointing, but it's just a question of sequence and there will be a point where we will -- Asia for acrylics will join the club of the midcycle. And I still believe that we have, in the midterm, a scope for continued recovery in Coating Solutions.
Just one follow-up, Thierry. Can you confirm that you are assuming a bit of some softening in MMA in the second half? Is that part of the -- is that included in the guidance now?
We still believe, but for the time being -- that's already 2016, so we have been [indiscernible] and I think it's good news. We know that some already, in part, it's certainly more than half of the new capacities have been commercialized, and we are still enjoying currently rather tight condition in MMA/PMMA, okay. So I think it shows that's it's a -- it should remain a good business even if, to answer your question precisely, we still assume that, in the course of the second semester, there will be some normalization, okay, and it is given in the guidance.
The next question comes from Christian Faitz, Kepler Cheuvreux.
First of all, how do you see the acrylic markets in Europe heading into Q3? Some of your peers that operate in similar markets are flagging softer demand from coating players. Do you share this view, especially on the coating side? And second of all, in Beaumont, is the maintenance turnaround concluded, i.e. there's no impact for Q3? And third, obviously, Thierry, also the best for your post-Arkema time.
So thank you for the -- thank you for your comment, Christian. Thank you for Thierry. Regarding the acrylic in Europe, we don't expect any softening. There will be the seasonality and usual seasonality of Coatings in the second semester, which is lower than in first semester, but it is true every year. But we don't see any specific element which should show some weakness in the second semester. If I put apart the seasonality we have seen in the first semester, I would even say that in the first quarter, as you know, the weather was not very favorable for good coating business in -- it was the case in Europe and the U.S. With regard to Europe, no, we see continuity, but there will be the seasonality, as you know, which is happening every year. But beyond this usual seasonality, we don't see any discontinuity. I don't know if I answered your question, but we don't see any new elements that would change our mind. With regard to Beaumont, no, I think the turnover is behind us. But we have a large turnover every year in the company, depending on which business unit. And what we tried to mention to you, are really the one which are really outstanding. And so as you could see, for the months to come, we have not mentioned any specific ones, so okay. But Beaumont, to answer specifically your question, is behind us.
The next question comes from Alex Stewart, Barclays.
Thierry, congratulations again. I've got 4 questions that -- they're all very straightforward, I hope. Firstly, the XP40 distribution agreement you have with Chemours, could you indicate whether you expect that to balloon margins next year, I imagine? Secondly, could you just quantify the impact on both volumes and earnings of the French rail strike, particularly in High Performance Materials? Third, if you could possibly give some idea of what the transaction or currency impact was in second quarter. I think you said was about EUR 10 million in the first quarter, but I'd be interested to know what that was in Q2. And then finally, there's been some news that your joint venture plant -- your acrylic joint venture plant in China was down at the beginning of July. Could you give any indication whether that had an impact on the Q2 results and whether you expect it to have a material impact on Q3? Sorry for the slightly long list of questions.
Sorry, on the Q2 and Q3 was relating to?
So there was some news that your Sunke joint venture, the 2-acrylic or 3-acrylic lines in China were offline at the beginning of July unexpectedly. If you could just confirm whether that was the case and whether it had an impact on Q2 and what the impact on Q3 might be.
With regard to Chemours, as you know, we don't disclose any contracts. We have never done that for any contract, we will not do it for this one. I think it's a good contract. It's the top of our strategy, as you know, to get position on the [ HFO ]. And in Fluorogas, there are -- it's current to have a partnership. And so this one, I think we believe it's a right and good move, but we don't disclose the volume and the margin. With regard to the French railway impact, well, we maintained the EUR 10 million -- around EUR 10 million impact, which says that most of it is in HPM, okay? With regard to the transactional impact on the second quarter, so we have 18 in terms of translation, which means that transactional you could take [indiscernible]. So if you agree with me, you don't see it, but so it's about EUR 5 million to say something, okay, which is mostly in HPM. So when you look at -- to take back the last 2 questions, when you look at the performance of HPM, where we were happy to maintain the 7.6% EBITDA margin, you have to take into account that we have 3 things. We have the -- most of the French railway impact. We have the translation and transactional impact, and we have also to manage the increase of raw materials. With regard to our plant in China, we have -- I think, we have, for maintenance purpose, there has been 1 line which has been still, which happens regularly in order to maintain. As you know, this plant is working not full capacity because we have 3 lines. So we manage it with our partner most of the time with 2, 2.5 lines. But -- and this was a technical shutdown. There has been absolutely no impact in 2Q on the performance of Coating Solutions. So back on the previous question of Thomas, at the end, you should look purely at acrylics worldwide. It has been very good growth compared to the previous year.
That's great. Could I just lead back into the French rail strike issue? You guided to EUR 10 million in -- back in April, which was very helpful. I suspect also there was an impact on volumes as well. Do you have any idea what the volume growth may have been in the second quarter without those strikes? That'd be great.
Very difficult to -- really to [ precisely ]. What I can say is that, if you look at the first semester for HPM, which is one way to look at it, we were at 4.4%, okay, with 7% in the first quarter and in the second quarter 1.5%. You had 2 elements which were specific. One was the Molecular Sieve, which as we mentioned, was at seasonality, so with strong seasonality in the first quarter and low seasonality in the second one. So what is important is to look at the full semester. And then you have this strike, that I would say so, if you assume that the 4%, 4.5% for the first semester is more relevant than the 1.5% of the Q2, you could assume that the 3 points is coming mostly from the strikes, something like that, to give you an idea, okay? It's not accountability but to give you an idea, okay? The 1.5% is less relevant than the 4% of the semester.
The next question comes from Emmanuel Matot from Oddo.
Several questions from me please, Thierry. First, do you think there are some risks for you regarding the trade war between U.S. and China? Do you admit there'll be some production flows between those 2 regions in terms of raw materials or finer products? Could that change your CapEx projects? What's your latest view about that? Second, could you come back on the situation in acrylic in China? You are talking about a disappointment in Q2. But if I'm right, you remain confident for the near future. What will drive up unit margin in China in the coming quarters? And maybe your third question on Fluorogases. Do you expect high market conditions to remain in the coming years? Because if I'm looking to the level of margin you reached on Fluorogases, sometimes I'm thinking about what happened a few years ago, and I want to feel confident about that. Is that the case for you also? And my last question from [indiscernible] may be what is your annual tax rate assumption for 2018?
So on the first one, Emmanuel -- so thank you, first, for your congratulation. On the trade war, first of all, the impact is not material for us at this point. But we are looking carefully at what is happening. We have a few polymers, which are impacted from U.S. to China and China to U.S., but it is limited. So I don't think, hopefully, it's long term, I cannot imagine, but we don't know and you don't know it's a long-term issue, but we'll see. But at least for the time being what we are doing, is that we -- as you know, for most of our product lines we are now global with production in Europe, in Asia and in U.S. We are reorganizing our production by grades, so by SKUs in order to make sure to minimize this impact. So at the end -- otherwise, we would have mentioned it more precisely, it is not material for us, but we are watching carefully. And hopefully this kind of measure, which are not good for the chemical industry as a whole, I'm sure our peers are saying the same as we are saying, will -- which is that you have no -- nearly -- the effect is quite limited for the time being. So we are not at all thinking of changing our CapEx strategy whatever. I think all these things are very volatile. It can change tomorrow, new things can happen. So what we try to do in terms of CapEx footprint is really to be balanced and [indiscernible] release the core of the strategy that we have expressed at the Capital Market Day and confirmed in the recent months. With regard to the situation in acrylics. As you know, we tried to give you some granular -- granularity. And so what we are seeing in acrylics is -- compared to what we saw at the end of last year, we are in a situation where we are not so far from the mid-cycle. The margin percentage is a bit misleading because what I mentioned before, you have the increase of the price, which dilutes the margin. We have a situation where we are a little bit above mid-cycle in the U.S., in a solid market. We are, in Europe, not so far from mid-cycle despite the fact that you had some restock, for example, from BSF, et cetera. So it's a situation. All in all, U.S. plus Europe, which is really consistent with what we thought, we are late in China, where the market is still changing and China is more volatile also. So sometimes it is in your advantage and we have it in certain product lines. Sometimes it's your disadvantage. What we're still seeing, we don't see it necessarily in the near future, but what is clear is that mid-term, even if we are disappointed by the situation currently in China in acrylics, we think that, mid-term, we maintain what we think is the [ right ] step. There will be some recovery in China to count -- I don't know if it is a couple of years, but in mid-cycle in acrylics in China. But overall for the acrylics, because we are 3 regions, we have different positions, different end markets for our acrylic acid. We think that, this year, we should not be far from our assumption that we had at the beginning of the year or at the end of last year, which was to be at mid-cycle. So we should be close to mid-cycle. And we still think that there is scope for improvement in the coming years. So gradually coming really at mid-cycle and going beyond in the years to come, okay. So we have to be maybe a bit patient -- more patient than expected, but it's a good product line, growing with comfort still -- contrast, depending on which region, is part of the game. I think we have a family with different regions, different business units. And for us, it's okay because we don't want, necessarily, all our product lines to be at peak. So I think you should take it as an upside and positive point. With regard to Fluorogases. First of all, as we have mentioned several times in the past 2 years, our split of profitability with Fluorogases, coming both from legislation, new business development and the evolution of the market itself, is far more solid than it was a few years ago because we have a profitability which is far more split, balanced between North America, Europe and Asia. In the old time, it was very, very dependent on 1 product in China and 2 products in the U.S. Now we are depending on far more products and in far more regions. So from this standpoint, we consider what we said when we started the year of 2018 is that, because we look at the intermediate chemicals as a whole, you have about 30% of Arkema, which is made of more intermediate chemicals versus the specialty part. It flows as a MMA/PMMA and acrylics. We try to manage a sort of stability, and we can count on it for this year and the coming year on these more intermediate chemicals. And as you see, what is happening with a family of 3 different business units with different momentum, we saw some normalization coming in MMA/PMMA to a certain point, but still remaining at a good level. And on the other side, we saw the scope for recovery -- further recovery in acrylic acid and intermediate Fluorogas for which we manage a sort of stability for the coming year. So this is where we are and we confirm what we think. So now I propose to have Marie-José answering for the...
On the annual tax rate. Actually, as you know, we've guided on a 23% tax rate for the year-end. We are currently a bit below. So we are still working on some assumptions, and basically, the impacts of the tax is also in France. And so far, basically, we are -- we don't see the need to change the guidance for year-end. We will keep you updated as we progress on that work. Fair enough, the current level seems to be clearly supporting this type of rate for the year-end.
Okay, thank you. And maybe what is your dollar parity you are using for your new EBITDA guidance for 2018?
I think it would mean -- in fact, we are very close to what we said at the beginning of the year, which was 1.20 on average. So if you take the first half and you combine with the current level for the second half, it gives you more or less 1.20. So I think, no real difference of our previous guidance, if it is your question.
It makes sense.
With the second half, which is a bit better than the first half, or at least from the first quarter, because the big difference was the first quarter.
The next question comes from Patrick Lambert with Raymond James.
Congratulations to both Thierry and Marie-José. Two questions from me, and they're pretty much related to the bridge of EBITDA in both High Performance Materials and Industrial Specialties. So in HPM, it's basically trying to understand a bit better the stability of the margins between Additives and the Technical Polymers. If I look at my underlying numbers, basically, we still have a sort of 50 basis point dilution in margins in Additives. Is that the correct assumption in the Q2 numbers? So that's for HPM, a bit more clarity on the moves of margins inside the division. And in Industrial Specialties, it's just to confirm the broad-based movements in the EBITDA. EUR 30 million -- EUR 32 million plus versus Q2 '17. That EBITDA bridge is broad based, meaning that it's not just driven by PMMA/MMA and gases but also, as I think you mentioned, that it's more than that.
Okay. Thank you, Patrick. With regard to -- as you know, I will not dig into your model and [indiscernible] comment detail by detail. What I could say is, first of all, on the EBITDA of HPM, it's quite a radiant performance. It's important to sustain it because it's not the case of all Specialty Chemicals business. So I think, for us, it's a stable 17.6% performance, which is a combination between Bostik and Advanced Materials in the context of negative FX and the context of negative raw materials, with the impact of the French strike. So you have to take that into account, which means that the underlying performance, even if we don't [ count ] a negative, is quite good. So once we have said that, appreciating this resilience, it's clear that mostly because of the raw material is lagging a little bit below last year in percentage. The good thing is that we start to see now margin percentage. We compare to -- at the end of the semester at the end of last year, which means we start to see really the impact of price increase, knowing that this price increase, especially in the [ disease ] for certain raw material, started in '16. And that our target is not only to be year-on-year comparable in the second semester but to go beyond that and to recoup -- or to recover or so what we got in '16. But I'm sure you have understood the full mechanics. So overall, Bostik has suffered a little bit. But I think, as I mentioned, we appear to see that we are getting closer to last year step-by-step. And that it's also a second -- it's very important, a sequential raise between Q2 and Q1. So Bostik margin has improved from 1Q to Q2. And the EBITDA of Advanced Materials, which is HPM, if we took out Bostik, is quite sustained and it's a very good performance coming from our product mix innovation, our ability, our pricing power. Many, many good news on that. With regard to Industrial Specialties, you are right to say that it's not just driven by MMA/PMMA and Fluorogas. It's really the 4 business units, which are contributing with an increase in EBITDA. This means also Thiochemicals and H2O2. And also I would like to mention again, but you all know this, that Industrial Specialties is not only intermediate. We have 2 business units which are intermediate, and 2 which are belonging to the specialty world, Thiochemicals and H202, and which have demonstrated over the past 10 years very resilient performances.
The next question comes from Geoff Haire, UBS.
Most of my questions have been asked. I just have one final question to ask, and that's on working capital. Clearly, we've seen a big move up in receivables and inventories in the half year. I was wondering if you could give us some idea of what levers you've got to recover that in the second half of the year.
Okay. So 2 things on the -- first of all, we are confident to recover, also to see a reverse trend in the second half. And we really think it will be probably consistent with, as you know, our long-term ambition of a 35% conversion rate. Now, when we have said that, you have 2 elements. You have the usual seasonality that we have every year that you did not see last year for once -- it was the only year, I think, in the past 5 years that you did not see the seasonality. The reason was -- last year is that we took down the working capital percentage from 17.2% to 15.5%. And because of that, you have one positive one-off when you change of -- you go to a lower rate. But we said last year, it was a bit low. So if we take that out, really we are -- like every year, you have the seasonality of the working capital, because we have higher sales in the mid of the year compared to the start of the year, and this will reverse in the second part of the year like every year. The second thing, which is more specific to this year, is that you have a huge increase in selling price. You like our pricing power, but you have it also in the receivables and the stock, okay? So this is mechanical. There is nothing you can do about that except not passing a price increase. But this is certainly not what we will do. So you have that. And this, obviously, we keep it up until the end of the year because raw materials will continue to stay high. So you have it on the stock. You have it on the receivables, you have it on the payables. But frankly speaking, no, there is not any concern or whatever on that. It's purely a mechanical effect of the usual seasonality. And the second thing is mechanical effect of the pricing on sales price and the raw material increase.
The next question comes from Georgina Iwamoto, Goldman Sachs.
I've got 2 questions. The first one is on your outlook for Fluorogases, and maybe you feel like you've half answered this question already given your comments on trade wars and Fluorogases profitability outlook. I was just wondering if your outlook for stable earnings in Fluorogases takes into account the risk of rising raw material prices because of the trade wars. We've seen commentary from fluorspar producers highlighting strong pricing for this raw material, which maybe that could be expected to continue given the ongoing tariff disputes between the U.S. and China. And then the second question, very simply, the volume impact from French rail strikes, whilst difficult to quantify, do you think you can recoup that over the course of the year or is that just lost volumes?
So the second question, no, it's lost volumes. I think, as you know, we are mostly polyamide. So I think we are really tight. So we managed well off our pricing power. But -- no, I think it has impact on the second quarter. We gave you very precisely this impact and, no, it belonged to past, but it happened and it's lost volume. On the first one, on the -- on raw material effect on the Fluorogas, which is a different question [ in contrast ] to what we had before. And there you could say, on Fluorogas and fluoropolymer, also, which belong to HPM. So I think it's a matter of pricing power. No, I think it's well integrated. I'm not sure -- I would [ share ], but I'm not sure that the trade war will have an impact so much on the fluorspar because the fluorspar is pretty much by region. So there are some movements it could impact but -- and sometimes, the fact that the fluorspar is more tight is, for certain of our guests, positive news. So you have -- at the end, this is not because the raw material base -- raw material are increasing. That is negative for the downstream. So to make the story short, we think that it's well integrated and that we should have -- compared to last year and because in second semester we compare to last year, which was really a very strong semester. We should be in the same kind of magnitude.
[Operator Instructions] The next question comes from Peter Clark, Societe Generale.
Thierry knows, I've asked this a lot, so a bit like a broken record. So as it's your last call, I'll ask it again in a different way. The Industrial Specialties margin now at 29%, I realize that Q2 is above trend. But we've said that a lot. You're now 1,000 basis points above the top end of that normalized guidance you give. Now I've heard your comments on this. And quite clearly, you're in a very different place to when you set that guidance, particularly in Fluorogases, but also, I guess, Thiochemicals has been beefed up. And I'm just wondering, assuming there is no global recession in the next few years, is that guidance or that normalized range pretty much redundant, which I presume it is. And then just a second clarification on the Bostik margin, what Patrick was asking. Was I -- were you alluding to the fact that the margin is now sort of stabilizing and it should be up as we go forward from here in terms of the raw material issue? Those were the 2 questions.
Okay. So on the first one, I think we said already a lot. First of all, gave the guidance for the full year. We said that we would be resilient on the second semester versus the last year second semester, which I remember exactly the question. The second semester, where everybody was saying do you think it will be sustainable, what is going to happen in '18, et cetera, et cetera? And what we are doing is that we confirmed that we are comfortable to manage the sort of stability in the second H compared to second H last year. Beyond that, don't forget that when you talk about 29% in the Fluorogas or even some other part of Industrial Specialties, our best quarter is by far the second quarter. So the second semester is completely different in terms of margins. There is a clear seasonality, which happens every year. So you have to take that into account. But now it's clear that we gave -- it was Capital Markets Day, a long time ago, we gave some guidance in a different world than the Fluorogas, you had not the F gas in Europe, for example, it was a completely different world. We gave some guidance for Industrial Specialties, long term. We did not review them at the Capital Markets Day last year. It's clear that we do now better structurally in Industrial Specialties than we are doing in [indiscernible]. So yes, we have done a lot on the business, the world is different. It is not only true for us but also for other companies. So no, I think, we have been very clear. I think we have answered many questions on Fluorogas. I think what we said, and this is why we define this for Intermediate Products, which represents 30% of Arkema, including Fluorogas, MMA/PMMA, and, again, acrylic acid, acrylic upstream. And we say we with this -- with the 3 that we manage as a sort of a small family inside of Arkema, or we try to manage the stability and we have passed this message now since a couple of years, and I think we have delivered well, and I think we should all appreciate that. It's certainly more volatile than the rest of the portfolio. But if you look at the evolution of the portfolio step-by-step, because you're looking yourself in static, which means today. But if you look at 2012, it was a long time ago, what it is today, what it could be in the long term, we continue to increase significantly the part of Specialties. So we have many good news to announce, some resilience of this more volatile business plus an ever evolving portfolio. So I think we are on the right track. With regard to the Bostik margin. Yes, in fact, hopefully in the coming quarters, years, the Bostik margin will continue to improve. It's part of our plan. It's not only coming from the recovery of raw material. It's also coming from the fact that we are making a bolt-on acquisition with high synergy. We have still the synergy of the [indiscernible] and a big part of them to finalize. We have the synergy of [indiscernible], which are stepping up. So we have many elements, which still [indiscernible] for improvement of margin at Bostik. It takes time, but we knew it would take time. But at the end, it's already a very good business case from what we got when we bought it from Total. So it's moving up and the margin will continue to move up, not brutally, because it's easier [indiscernible], but it will continue to move up in the coming years.
The next question comes from Martin Evans, HSBC.
And again, congratulations and very best wishes to Thierry. Happy memories, Thierry, of road shows with you in the early years, particularly in the U.S. So good luck in the future. The question, just sort of up-to-date really, is acquisitions, I guess, to the other Thierry. Is there any -- I mean, essentially, there's no mention of them particularly either on the call or on the slides. And there was a period when I think you were certainly being asked about further acquisitions and broadening the portfolio, and you seemed quite responsive to that debate, and there isn't now. So are you more conservative? Or are you happier possibly with the current portfolio, apart from obviously opportunistic add-ons if and when they were to appear? In other words, do you now feel that you largely have the structure of the group right, and that you don't, therefore, need to be too ambitious in terms of a large deal, because the balance sheet would allow you to buy something quite large, but I sense maybe you're sort of stepping back from that a little bit.
No, I don't know how to answer your question. I think we have a very solid strategy, which is very clear, which is that of a bolt-on and medium-size acquisition. I think this is what we disclosed at the Capital Market Day in 2017. So I think our base strategy is clear. Once we have said that, you know what, I think you have followed the company yourself in the beginning, since the spin-off. I think at this period of the life of the company, we believe we take the decision which makes more sense. Some we have announced, some which we have thought about later, we'll see. But we believe that we have a good portfolio. It's very important to continue to drive acquisition. This is not necessarily a big one, because as it is you can create a lot of value, but small to medium size for material is more -- as this material is more sure of availability, but I think we are a [indiscernible] with a lot of skills there, which we are creating downstream. So no, I think we are very consistent with what we say. As you know, we have financial flexibility. But this is not because we have them that we need to use them. I think it depends on opportunities. I think what is clear is that we know we can deliver the strategies that we have presented in the Capital Markets Day. It's under our control. Once we have said that, if at a certain point next year, in the coming years we have other ideas, we will implement them. But I think we are -- we believe -- at least what you know from our strategy, it's already a good value-creation strategy. It is a good base on which you can count. After that, if we can add to that some more disruptive ideas because they come, we would not be shy. But our strategy currently is quite clear.
The last question comes from Antoine Bregeaut, Exane.
It's actually Laurent from Exane. And Thierry, good luck for your tennis playing career. Similarly, my question is on M&A. You talked about the family of the, let's say, more cyclical businesses. No one wants to say that they've got an ugly child. But I was wondering if you could talk about the, I guess, strategic reasoning around the family and whether you would consider disposal not just to finance an acquisition but just to make the portfolio a bit more simple to follow and also to benefit from the current good conditions in terms of M&A for [indiscernible]?
No, I think I will answer you the same as Martin. I think we have the base strategy. You say the portfolio is it more complex than many of our peers, I'm not sure. It's less complex than it was in the old time. It's far better than it was in the old time. It's a permanent evolution. As I mentioned to Martin, I've never been shy of having a disruptive strategy. But I think, for the time being, we have a strategy which is really based on a good portfolio, which is really delivering quarter after quarter, year after year. And I think you appreciate that in Chemicals, it's quite balanced. We have -- but we have also financial flexibility. We have a stronger track record of a changing portfolio. So I think things can evolve. We are not shy of anything. There is no taboo in the company. But for the time being, let's say that we have a base strategy, which is again the one we presented at the Capital Markets Day. It's difficult, Laurent, to tell you more. And I'm not sure you expect more. But this is my answer, I would say.
And regarding -- can you may be update us -- maybe outside of the family of those cyclical businesses, can you maybe update us on your target to dispose of EUR 700 million of sales? I think we have about half of that left? Is this -- I guess, at a lower priority in terms of your strategic agenda than it used to be?
No, I think -- what I -- first of all, the question, I think, the time I got it was a year ago after I told you it was a good [ hit ] every quarter. And I remember my answer at that time was to say that, in terms of sales, it was certainly a bad half. But in terms of profitability and top price value -- because in fact, we saw businesses with higher profitability than we were expecting at that time, we were about at 3/4. So for me, that says that we are not far, okay. And we would have no difficulty to do better in the next 2 years. So it's not -- for us, it's not an issue. It's not that it is not top priority. It's still a priority, but timing is very important. There are many parameters, which are at stake, but we are completely confident to do more at the end of the day. So it's not an issue.
We currently have no further questions. [Operator Instructions]
Sorry, just a final comment on what Laurent said about the -- what he calls the family of cyclical, which is more cyclical or intermediate. When you put those 3 together and see facts are facts, you can apply it to every company. When we look at the resilience it is very good [indiscernible] since 4 years of these businesses. I think it's certainly, individually, more volatile than the rest of the portfolio. It's considered to be intermediate with certain level of volatility. It can be again volatile. But altogether, they have shown certainly a better resilience than each of them separately. And the combination has been quite good in the past year.
Thank you. We currently have no further questions.
Okay. I would like to thank you all for your questions. I would like to wish you a nice summer. And if you have any further questions, don't hesitate, as usual, to call Sophie. So thank you very much. And bye-bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.