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Ladies and gentlemen, welcome to the Arkema results conference call. I will now hand over to Mr. Thierry Le Henaff, CEO. Sir, please go ahead.
Thank you. Good morning, everyone. Welcome to our Q3 2021 results conference call. With me today are Marie-José Donsion, our CFO; and the Investor Relations team. As usual, you can download the set of slides used during this webcast from our website. And together with Marie-José, we'll be happy to answer your question at the end of the presentation. Before commenting Q3 results, I would like to quickly come back on our new brand territory unveiled earlier this week. And it's the second time we have made such a change in the creation of Arkema. With our new identity, innovative material for a sustainable world, we are positioning our specialty materials at the heart of our ambition to play a leading role in addressing the world's major challenges, in line with the strategy we announced last year, and placing our expertise of materials science at the core. The timing of this new identity is good as Arkema delivered a set of excellent results in the third quarter, building on our strong dynamics in the beginning of the year. Our teams can be proud of what they have accomplished. And I feel that quarter-after-quarter, we are reaping the fruit of our strategy toward innovative and high performance materials. Over the past few years, we have accelerated Arkema's repositioning of structural growth markets. And we have significantly strengthened our unique specialty materials platform around our 3 pillars of Additive Solution, Advanced Material and Coating Solutions. We have done this through acquisition, cutting-edge innovation and high-return CapEx. And I expect Arkema to continue to benefit from this strategy over the coming quarters and years, thanks to the many exciting projects underway, which will enable us to fully capture the significant growth opportunities for mega trends. As you read, in Q3, we achieved an EBITDA of EUR 474 million, up 54% year-on-year despite a negative scope effect of over EUR 30 million. EBITDA margin reached a record level for third quarter at 19.8%, so let's say, 20%, above the Q3 '19 pre-COVID level of 17.4%. We are very pleased with the quality of our results. Firstly, all of our Specialty Materials segment contributed nicely, with overall solid underlying volume growth in most of our markets, driven by accelerating demand for sustainable solutions, while noting some exceptions in a small number of markets like automotive, oil and gas and paper. In parallel, our volumes were impacted by the lack of availability of certain material, it's not new to you. COVID-related lockdown in parts of Southeast Asia, like Malaysia, and a softer environment in China due authority's measures to limit energy consumption. In this context, volumes for the group are up more than 5% compared to last year, thanks especially to strong demand in high-performance polymers and coating solution in markets like batteries, consumer goods, eco-friendly paints, 3D printing and electronics. In adhesives, underlying demand remained strong in construction and structural adhesive for industrial application, but with [indiscernible] by raw material shortages had a negative impact estimated at 5% to 6% on volume from Adhesives, which is not insignificant. Indeed, our Q3 performance was achieved in a more difficult operational context, marked by rising raw material shortages, logistic constraints in Asia and in the U.S., and of course, higher input cost. As you can see from the significant price effect in Q3, and while it is true that we benefit from tight market condition in the acrylics chain, our Specialty Material once again demonstrated robust pricing power in the face of accelerating higher raw materials, energy and transportation costs. As in Q2, thanks to our pricing actions, we managed to completely offset this negative impact at group level, including in our most downstream businesses like Adhesive, High Performance Polymer and Coating Resins and Additives, which is really, I think, a remarkable achievement in this context. We expect to see further increases in input costs in Q4. So our pressing action will continue, and the net pricing impact should again be at least near trough in Q4 for the group. Our Specialty Materials EBITDA reached EUR 421 million, plus 35% against the Q3 '19 pre-COVID level. Specialty's EBITDA margin was up 20%, thanks to the strong performance of High Performance Polymer and Coating Solution, while Bostik's margin came in at 14%, despite the mechanical dilutive effect of price increases of around 1 point. So in spite of the headwinds of further input cost increases, as the impact on volumes of raw material availability in Q4, we are maintaining Bostik's 14% EBITDA margin target for the full year. Frankly speaking, this would be a good performance for Bostik, really underlining its resilience, as this kind of environment is particularly challenging for businesses like Adhesives. As you know, they are formulated products using a wide range of different raw material. So if there's just one of the components missing, we cannot make the product, and we'll lose the sales and margin. Intermediates also recorded better-than-expected results as a negative scope effect linked to the PMMA disposal was more than offset, thanks to favorable market conditions in Asia acrylics and solid flurogases in the U.S. Our Specialty Materials, which now represent nearly 90% of our sales, are truly geared toward eco-friendly solution in high-growth applications. They are driven by global mega trend and help address the challenges of climate change, resource scarcity, urbanization and new technologies, amongst others. From our 5 innovation platform, aligned with the challenges, we expect to generate additional sales of EUR 400 million by 2024 and EUR 1 billion by 2030 versus '19. These targets will be reviewed when we publish full year results. And our feeling is that we'll be able to upgrade them given the current dynamic of new business development and positive outlook. We'll also try to give you more insight as regards this target. As you can see in Slides 7 to 9, there are multiple exciting examples of Arkema's innovative solution addressing key challenges the world is facing. In clean mobility, we are seeing a true acceleration in batteries. And for us, it is not just PVDF, but the whole battery ecosystem, including, for example, PA11, used in casing and cooling lines as well as tomorrow's Bostik thermally conducive adhesive solution. If we look ahead, Arkema will also have a big part to play in hydrogen vehicles, where our high-performance PA11 as a composite for the tank casing or as a liner inside the tank, although at the same time, to resist to very high pressure and reduce weight. In addition, our Elium composite are very promising for the tanks and also in terms of nitrating from the chassis. When we look at living comfort and home efficiency, we have really a wide range of eco-friendly solution over the 3 specialty segments. Examples include bio-based and low VOC decorative paints, non-toxic adhesive and sealants from Bostik, cool roof painting with Kynar Aquatec, which allows to reduce temperature inside the building. Consumer goods is also an area where the acceleration of demand for product with higher performance, better environmental footprint and recyclability as well as approved design is most pronounced. We have a huge, for example, and well-recognized presence in high-performance sports shoes with Rilsan and Pebax. Including 100% recycling offering, I could name also consumer electronics with Sartomer solutions in 5G, also bio-based 3D printing glasses frame. Clearly, the strength of our innovation and our best-in-class technological and application of how -- is instrumental in our ability to capture all these opportunities. Beyond this, the third quarter was also very eventful as regards our transformation and 2024 ambition. We were, as you know, very excited about the acquisition of Ashland's performance adhesive. Beyond the more significant M&A movement, we'll continue to work on the repositioning of our portfolio. And we have announced the divestment of our epoxides business to Cargill at a good multiple. I want to update you with more specific element, but we are still progressing on the strategic review of the [ MSC ] fluorogases. We are making further progress on the 2 major CapEx which are directed towards sustainability with a Singapore biofactory and also the Nutrien HF investment in the U.S. And finally, on the cash allocation front, we are on track to finalize by the end of November the EUR 300 million share buyback program launched in May after the divestment of PMMA. And most of those share will be canceled, as you know, by next January. So another, in short, very positive quarter. As you can see, number of every other satisfaction, we are very pleased both from a financial and qualitative viewpoint, despite an operational environment, which is very demanding for the teams and will likely remain so in the near future. As you'll see in the outlook, which I will comment at the end of the presentation, we are very confident for the rest of the year. So I will now hand it over to Marie-José, who will review in more detail on those Q3 results.
Thank you, Thierry, and good morning to all of you. So I'll go quick to the financials. So regarding the sales bridge, at EUR 2.4 billion, sales grew 29% organically year-on-year versus 2020 and 17% versus the pre-COVID Q3 '19 levels. The volumes are up by over 5% relative to last year, with a positive underlying momentum in all regions. The price effect is close to 24%, which reflects the decisive pricing actions to offset higher input costs as well as favorable conditions in the acrylic chain in all 3 regions as well. This is -- there is a negative perimeter effect, a bit short of 5% versus 2020, which is attributable to the divestment of PMMA in May of this year, and which is only partially offset with the bolt-ons that we have made in Specialty Materials. Currencies had a slight positive impact of around 1% on sales in Q3 in light of the strengthening of the dollar versus euro, in particular. Driven by a higher volumes, the positive net pricing and mix improvement, Arkema achieved a very strong 54% growth in Q3 EBITDA at EUR 474 million, as mentioned by Thierry. And looking at the EBITDA of the different segments. We have, of course, Bostik, that achieved an EBITDA of EUR 79 million, up 8% year-on-year, thanks to a solid pricing power, leading to a broadly neutral net pricing impact. This has more than offset the effect of a lower year-on-year volumes linked to raw material shortages and difficulties in logistics. The underlying demand momentum, though, remained strong in all major markets. Advanced Materials EBITDA is up nearly 40% year-on-year at EUR 174 million, which is about 10% above the Q3 '19 level, while the EBITDA margin remained at a high level, above 22%. The high-performance polymers had a very strong quarter, again, with strong volume growth in most end markets, especially batteries, electronics and consumer goods. And they also benefited from an improved product mix. Performance Additives, on the other hand, were less buoyant, let's say, impacted by a sluggish oil and gas and petrol markets. EBITDA of Coating Solutions is at EUR 168 million, so frankly, strongly up versus Q3 2020 as well as Q3 '19. The segment benefited from higher volumes across all major markets. And naturally, we benefited from the price increases in downstream activities, offsetting higher raw material and energy costs, as well as from favorable conditions in the acrylics chain. Finally, Intermediates EBITDA grew nearly 35% to EUR 74 million, thanks to good market conditions in acrylics in Asia and the -- in fluorogases in the U.S. So with depreciation and amortization at EUR 131 million, basically recurring EBIT came to EUR 343 million, which is double last year's level, and the EBIT margin stood at 14.3%, up from the 9% of last year. So we can imagine the -- this impacted very favorably the return on capital employed ratio. Financial results stood at EUR 15 million versus EUR 23 million in Q3 last year. And this is clearly in light of the lower interest rate on debt swapped into dollars in our portfolio. In the first 9 months, the recurring effective tax rate came to 20% of recurring EBIT, which is basically in line with the guidance we gave and is a bit below last year's level of 22%, thanks to a more favorable geographic split of profits. Consequently, Q3 adjusted net income more than doubled year-on-year at EUR 258 million, which corresponds to EUR 3.4 per share. Briefly on cash flow and debt. Basically, the Q3 recurring cash flow amounted to EUR 236 million versus EUR 311 million in Q3 2020. The difference comes from the working capital variance mainly, which represents an outflow of EUR 103 million in the quarter versus an inflow of EUR 158 million last year. And this is the result of higher volumes of activity as well as a price inflation, leading to a gradual rebuilding of inventories. The working capital ratio on annualized sales still stands at a low level of 12.3% versus last year's level of close to 14%. The latter being basically what we consider to be close to a normative level. Capital expenditure totaled EUR 175 million in the quarter versus EUR 138 million last year, which reflects the momentum in exceptional CapEx as a result of the acceleration in the construction of the polyamide 11 in Singapore and the Nutrien project in the U.S. So total recurring and exceptional capital expenditure is still expected to amount to around EUR 750 million this year. Q3 free cash flow amounts to EUR 74 million and includes a nonrecurring outflow in the quarter of EUR 99 million relating to the tax disbursement linked to the PMMA sale in the U.S. Consequently, net debt at the end of September is at EUR 1.3 billion. This includes the EUR 700 million of hybrid bonds, which remains basically stable quarter-on-quarter. And the net debt level to last 12 months' EBITDA ratio stands at 0.8x. Thank you very much for your attention. And I'll now hand over to Thierry for the outlook.
Thank you, Marie-José, for this explanation. So after this pleasing third quarter, the fundamentals of the fourth quarter should be in line more or less with those we have seen in the past few months. Underlying demand is still good across most of our end market. And we believe our unique portfolio specialty material is very well positioned to seize the growth opportunities, thanks to our sustainable innovation and recent capacity additions. We are however, mindful of the challenges in automotive into chip shortages and of the energy-related restrictions in China. Of course, the shortages and increase of raw material will remain a point of attention. And we will adapt our pricing policy accordingly as we did in the previous quarters. We are confident that we can deliver a robust performance in the fourth quarter and so we decided to raise for the third time this year our full year 2021 guidance for Specialty Materials. We now expect Specialty Materials EBITDA to increase by at least 40% year-on-year in 2021 at constant scope and currency versus a plus 30% announced when we raised guidance at the H1 results publication in July. For the group, we expect an EBITDA of around EUR 1.6 billion in 2021 versus the previous guidance, which was EUR 1.4 billion. This guidance shows the significant value creation we have generated over the past few years and will generate this year as our EBITDA will be well above the '19 and '18 levels, but with a much better mix and much lower debt, as well as a smaller perimeter following the divestment of PMMA. Our teams at Arkema are focused on delivering the new vision for the company, which we announced at last year's CMD. Innovation in Specialty Material is at the core of what we do to capture the huge opportunities for mega trends and at the heart of our brand positioning. We will also continue making value-added bolt-on acquisition in Specialty Materials, progress with the strategic review in fluorogases and aim to remain best in class within our sector in corporate social responsibility, including further significant progress on our carbon footprint reduction. I thank you very much for your attention. And now together with Marie-José, we are ready to answer your questions.
We have one first question from Mr. Emmanuel Matot from ODDO BHF.
Maybe first, what can you tell us about 2022? Is Arkema in a position to further grow its EBITDA because the basis of comparison looks now very impressive, very challenging? Second, the cycle remains very good in Coating Solutions. When do you think you will go back to more normal market conditions? Are there notably some new capacities to come in acrylics -- in the acrylics market in Europe and North America in the next quarter? Third, do we have to worry about access to key raw materials for Arkema in the coming months? Do you expect higher negative impact on volumes for additive? As you mentioned, if I'm correct, minus 5% and 6% of loss of volumes in Q3 in Adhesives. Could these shortages extend to other businesses? And last question, do you confirm that CapEx are going to reach a peak this year and should go down as from next year?
Okay. Thank you for your questions. So with regard to 2022, so clearly, we are publishing today our third quarter. So I think, first of all, we need to appreciate the quality of the results. Otherwise, we already in the future never what we have just achieved. So I think it's important to recognize the quality. With regard to '22, I will make you the same answer as I do every year. I think it's a topic we will more address when we publish the full year, so let's deliver the first quarter and then let discuss '22. What we try -- nobody knows exactly today what will be '22 macro environment. And I think that, you look at '21, you remember the discussion we had in '20, nobody would have predicted what has been '21. So we can -- everybody -- because kind of an advice on the macro, which is a starting point on '22. But nobody knows exactly and everybody will be wrong. So it depends really on the assumption. So what I often say is that -- and it has been -- as you could see, it has been quite beneficial is that, inside Arkema, we focus on the self-help and on the -- our positioning in order to be able to adapt to and to be good in what will be the condition of the year. So I think every year, we try to outperform the market. This year, it's absolutely obvious. And we are operating in condition. We are completely different from the one we would have sought for '21. So now for '22, we'll continue on the big elements. We'll continue to progress on the sustainability solutions. And we'll benefit from our new business in HPP, in Adhesives, in downstream of Coatings. Certainly, we should expect some normalization in acrylic value chain, but we know that. But on the other side, if raw material are getting lower, we benefit from it in downstream. So it will be, as usual, a sum of elements. But to go beyond that is too early. So what is clear is that we are confident in our positioning to do better than most of our peers in a given market. And this is what we did this year, we did previous year and we tried to do next year. With regard to the Coating Solution, you say -- what we should expect on things going back to normal or whatever. First question to you is, what is normal? Because I mean it's something which is a definition which is changing all the time. What is clear is that, in Coating Solution what, we said has been true is that we were not satisfied with our performance in the past years, which means that we consider that level of profitability was not enough to reinvest. And we believe that this year, we appreciate the fact that we did the right choices. And what we said was true, which means that it's a strong product line, and we appreciate that. Now it's clear that in some part, we earn more than what should be the normalized. So there could be some normalization, clearly. But it will stay at a solid level. After that, there is a when it could normalize. It depends -- I mean, again, each context is different. So if you have some less tightness on the more capital-intensive products, you will benefit from the downstream and vice versa. What is very important for Arkema, again, is positioning, upstream, downstream, different product line, coatings, Adhesives, HPP, Performance Additives, to make sure that whatever the environment, we perform well against competitor and we perform well in absolute terms. So I think our positioning is better and better. Now what can be market condition in acrylic? It's too early to tell you. Next year, I think they should be solid. At which level? We don't know exactly. But what is more important for us is to continue to improve structurally our portfolio and to be more and more on specialty. And you see the full benefit clearly this year. On raw material, yes, it will continue to be challenging. But also we benefit from it. You saw it in the -- in your previous question. So again, it's difficult to take one element and not the other. So it's a sum of element. And then clearly, access to raw material is working against us this year and particularly with the more downstream businesses. And [ pharmacy ], because as we mentioned on [indiscernible], if [ pharmacy ], you have on raw material, which is missing, this is a whole product that you cannot make. So it has a direct impact on the top line, which we got because we have lost more or less 5% of our sales in adhesives in -- that we will recoup when the raw material will be more accessible, but that we launched just because we could not make the product because one small additive was missing. So what is our visibility on that? I think things will improve. At which speed? We don't know because we have all been surprised this year. So it will not be easy to have a precise forecast. We think it will improve, not in Q4. Q4 will be again difficult from this standpoint. But hopefully, in the first semester next year, it will improve. But again, you have not -- you have never a perfect environment. So some environment are better for this product line. Some other are better for another product line. I think what is important for us is to be -- from a geographical and project license point, to be balanced in order to answer to different kind of environment. And the last one, because you have many of them was...
CapEx.
CapEx. Do you want to answer, Marie-José?
So it is correct that the exceptional CapEx are at a peak this year with a EUR 250 million spend in 2021. And basically, since the start of both plants is taking place, let's say, in the second half of next year, we should basically have a tail of spending, which probably will represent something like EUR 150 million next year. So definitely, this will reduce, let's say, the total spend in CapEx that we project in '22.
And again, maybe to complete what Marie-José -- I mean the CapEx we have this year, we had last year, we had next year, this exceptional CapEx. They are done for the good of the company, which means they are very interesting CapEx in terms of return, in terms of sustainability component. And they are very, very good CapEx. So for you, it's good news because we are able to find project which really, at the same time, a good return and a significant improvement of the footprint of the company, both in terms of sustainability and in terms of innovation. So you should appreciate that. I'm sure you do.
Next question is from Mr. Mubasher Chaudhry from Citi.
Just 2, please. I was thinking about the Nutrien project. I think it's expected to come on sometime in 2022. Just firstly, just on the timing of the start-up. And then secondly, what kind of contribution should we expect from that? And then in the press release, I think you talked about the -- that you were constrained or there was some capacity constraint from the dual controls in Asia clinic. Is there any way of quantifying what that was? Or are you already seeing that picture turn? And are you starting to see more normalized operation in Asia clinic?
Okay. So with regard to Nutrien, yes, it will start in the second quarter 2022. So a little bit in advance compared to the polyamide 11, if we keep the same track. In terms of contribution, overall, for this big project, we target to have between 4 and 5x EBITDA at maturities. This means that, let's say, if we spend, to say something, EUR 150 million, we divide between 4 and 5 to be -- to get maturities. The profitability and the maturity for this kind of big project is after 4 to 5 years, okay? And then if you want to have an assumption, you take a liner from 0 point. On 4 to 5 years, you take a liner progression, okay? With regard to Asia capacity constraint, yes, it's true that, especially now with this energy control, which has been a restriction which has been implemented by the Chinese government, we -- the acrylic is more tight even than it was at the beginning of the year, but you have less volume. So it put a pressure on the price, but you have less volume. So at the end, you make certainly less money. But overall, it's clear that after many years where we have suffered, in China, we appreciate the fact that finally, the result are really the expectation we had, which means that the investment we have made there, at least from a return on capital employed standpoint, we can debate about the cyclicality, but return on capital standpoint and IRR was -- is really very good. Now can it stay next year at the same level? The answer normally is no. I come back to the previous question from Emmanuel. There will be normalization. If anything, it's not what is the normal. I think it's above what it has been in the previous years and is below what it is this year. Now do we see -- that maybe is a question, which is beyond acrylic. Do we see overall in our kind of products significant capacity addition? I would say no. The trend is less than it has been at a certain period. And this is for different reasons. The first reason is that the cost of making new capacity is more and more important, because of the lack of talent, not in our company, but for construction, for findings, lack of resources. It's true in the U.S. It's true in Asia. And the cost of metal, as you can see, of -- is -- or any materials you need to build your plant is far more expensive because what you see on our pricing on our raw material is also true when you want to build the plant. So you have a market condition which make the decision more difficult today to make. And I think from a CapEx standpoint, we don't see significant capacity addition with regard to the products we are making, which is, I believe, a good thing, knowing that in China for acrylics, we were starting from the high point in terms of capacity. So we can only appreciate the fact that we start to see the light.
Next question is from Matthew Yates from Bank of America.
A couple of questions, please. Maybe it's around the CapEx theme. But very impressive performance in the materials division this quarter. And obviously, that's an area you've been CapEx putting to work to try and support the future growth in these high-margin, high-return areas. But even so, given the growth that you're seeing and the mega trends you've talked about, is this suggesting that we need to have an extended period of CapEx to add more capacity in areas like PVDF over the coming years? So what you've described as exceptional CapEx actually becomes closer to normality. The second question is around the Intermediates division. I'm just wondering how you're prioritizing the remaining strategic actions in the portfolio in light of recent market events. I guess you've got these better market conditions for acrylic spreads in China. And I gather the EPA has also now formalized a phase-out process for the HFC gases in the U.S. So I don't know if that regulatory clarity helps you engage in any fluorogas discussions, it'd be good to get an update there.
Okay. Thank you, Matthew. The first question is a very interesting one because it's clear that, as you mentioned, as I mentioned, we are successful in the expansion that we have implemented. And it's a matter of balance between being reasonable in terms of CapEx, which is part of the equity story of the company, but also to follow the growth. I would say I would split the kind of investment in 2. When you talk about PBDS, and we have increased CapEx very significantly in the past. Finally, it's recurring. It's higher than it has been, but it's recurring. After that, we can debate. Is a base is 5.5% or 6%? But the discussion is around that. After that, you have really the big, big ones. And again, so far, we'll see if it change. But so far, where we believe we could have a sort of new exceptional CapEx is to double the plant in Singapore. And if we announce to you one day that we doubled the plant, then it will be good news. This means that really it develops the way we thought this appetite for biosourced high-performance polymer because this product is unique. And we believe that we should not wait too long in order to double the plant because the plant is more or less half of what we have in France. So the natural size is to double it. So so far, my answer to your question is, let's say, maybe the 5.5% is a little bit stretched, and it should be closer to 6% in a recurring basis, okay, to be confirmed. We have not -- for the time being, the competence, and the some day, to announce the doubling of Singapore, which basically would not -- we will not be able to complete in the recurring envelope. Is that clear to you?
Yes. Very much so.
With regard to the Intermediates, the consolidation disposal, the way you want to name it, we are still following the -- I would say, the step-by-step approach. So we did PMMA. Next step will be fluorogases. Clearly, what you say is helping us. This means that at least in the U.S., we have now a good idea on what will be the legislation framework, which is working in our favor. And it's better to sell activities when the landscape is solid and in your favor. It's clear that acrylics in Asia are working also in the right direction. But I don't think it will change our order of doing things. So I mean, if we have opportunities, we'll certainly look at it. But for the time being, the way we see it is that, let's take advantage of the fluorogas. And as I say, I think in my speech, I say we'll -- and many times, we'll not update every 3 months on that. And we'll just update if we have some breaking news, which is not the case. And then we'll do acrylics after.
Next question is from Mr. Martin Roediger from Kepler Cheuvreux.
Three only minor questions. Firstly, on Coating Solutions, did earnings in both business units, i.e., coating resins and coating editors, grow similar percentage-wise like the segment, which was up by 147%? Or was the earnings growth in upstream clearly higher than in downstream? Secondly, on the general earnings drivers across the portfolio, you mentioned accelerating demand for more eco-friendly and higher value-added solutions in Coating Solutions. You mentioned accelerating demand for sustainable and high-performance materials in Advanced Materials. I understand that you benefit from such innovations. Can you provide some color how strongly innovations performed in your portfolio versus the rest of your portfolio? And what is the current innovation rate? And thirdly, really a minor question on the tax rate. Can you provide some guidance for the full year? And especially, what do you think about the likely tax rate next year given your exposure to the U.S. and the discussed changes in the tax rate there?
Thank you, Martin. Maybe we can start with the last one. If Marie-José want to answer?
Okay. So basically, right now, I understand the Biden administration is not fully clear on the tax rate for next year. So initially, we thought there would be an increase from 21% federal tax to 26.5%. So this was what we were basically starting to work with. We understand now the last tax let us believe that the tax rate could remain at 21%. So let's say, obviously, we will all be probably fixed at the end of the year. So right now, I'm building a budget at a flat federal tax rate of 21%.
Thank you, Marie-José.
Unless you have different information on your side, I don't know.
Okay. On Coating Solutions, so both will contribute both upstream and downstream. It is the first thing to have in mind. This mean because we had some question on that, some of you had some impression that Coating Solution was nearly only driven by acrylic stream, which is not the case. We have very strong performance downstream. And for me downstream is Arkema Coating Resins, Sartomer products and Coatex products. So it's really additives under any kind of form and any kind of technology. Now the improvement from -- is a bit higher from streams than downstream. But does it mean that upstream is a pure cycle matter. This means that if you look at the previous years, we are starting from really a low point, which was below the reinvestment point. So this means that this year, for the upstream, we have 2 thing. You have -- and we agree some over earnings because the market is very tight, and we accept that. But you have also some catch-up from a situation which was not acceptable long term for the players, okay? So have that in mind. And then on the downstream, frankly speaking, we do a good job. And beyond the full year setting, the increase of raw material, and this raw material and includes the acrylic monomer itself, we have a good volume trend coming and -- come to your second question, from this innovation on mega trends and sustainability. Now if I understand well your second point, you are saying innovation is really coming more on the HPP and Coating Solution. And you say, what about the rest of the portfolio? In fact, if you go to the Page 14 of the presentation, so everywhere in the presentation, you have plenty of examples, which go in different platform of business units. But if you go on Page 14, you -- okay, on the Capital Market Day. But you have also in the -- on the slide, you have our 6 platform of water management, new energy, light weighting, electronics, management of natural resources. Okay. On this platform, the concern really, all our business segment: Coating Solution; Adhesives; and Adverse Material including HPP; and Performance. If you take, for example, adhesives, they are present on new energy. For example, you have additive for cell-to-cell in battery. Light weightings, they are very important. Everything we developed through structural adhesives is present in light weighting. We are working on the value-based raw material in order to develop new kind of adhesive. Compostable packaging, also we look at it. So you have plenty of examples in adhesives and the same for performance additives. So I would say it's true that when we give you examples, we try to give to everybody example they can really understand easily. This is why we mentioned a lot about batteries, about tomorrow hydrogen tanks, about ecofriendly paints or about sport shoes. But it's more than that. It's really every year in the company, and we have more and more platforms. We will touch not any one segment, but all 4 segments. In terms of KPI, which was your last question, we can say that we have 15% of sales consist of product below 5 years old. And I would say nearly everything now is dedicated to sustainability. Nearly all our new business development, our research, I don't talk about fundamental research, but really research for new business is dedicated to sustainability. Okay, Martin, that's for you.
Next question is from Mr. Chetan Udeshi from JPMorgan.
A few questions from me. The first question was, it's really impressive to see the ramp-up in Advanced Materials prices to almost 15% year-on-year in Q3. Are you able to give us some color on which products are driving that sort of the increase? Is it across the board? Or is it specific to certain products? We've seen, for instance, with PVDF in China, the prices have gone through the roof. So I don't know if that's contributing to that big price increase you've seen in HPM. So that was the first question. The second question was, going back to the discussion around acrylics and Coating Solutions in general, is there a way for you to maybe isolate what could be the impact from the upstream tightness on earnings in Q3 or for 3 quarters of this year? And I think the broader question here is, if I go back to the Capital Markets Day last year, the target was to have 16%, I think, margin in this business. Today, maybe we are on a run rate basis, close to 20%. So is there a reason to believe maybe it should be more than 16% in the future? That's the second question. Third, can I just confirm because I wasn't very clear, should we at least expect the absolute CapEx to go down from this year into next year? Or is there a chance that it may not go down because of some additional growth CapEx that might be needed?
So I will let Marie-José complete on the CapEx because I thought she was clear that maybe she can complete, and we'll do it certainly. On the pricing, in fact, what you should have in mind is that our pricing is mostly dictated by the raw material. So this means that we have more pricing increase where we have more raw material increase. And this is the first things. Now beyond that, it is clear that we have some most -- report from acrylics, as we mentioned. But in fact, it's fully across the board. We pass price increase nearly everywhere. And even for adhesive, which is not a market where, typically, since it's very downstream, very formulated, you expect price increase. We have also in adhesive a significant price increase. And you have, for example, in Q3, you have 6.6%, but it's an average. This means that between the start of the Q3 and the end of Q3, you have the ramp up, and it will continue in Q4. So it's really a very special year. I've never seen where you have raw material and input cost because you should add energy and transportation, which is all across the board. And because of that, you have significant price increase all across the board. Now it's true that -- once we have said that we have significant price increase all across the board, you have some which are increasing a bit more than the other. But I will not enter into specifics. And the specifics can vary from quarter-to-quarter, so it can be even misleading. But clearly, we said we benefit beyond the natural pricing power coming from our renovation. Our positioning, we have worked so much on the positioning since many years, that this year, clearly, we benefit from it. You mentioned battery, yes, clearly, it's doing well. But we can mention plenty of niches where we have -- we benefit from niche with superior value product because there is a lot of innovation in them, and we really appreciate that. Now again, on Coating, second question, Coating Solution. To be clear to everyone, you have 2 different -- on acrylics, you have 2 different situation. You have the one of Coating Solution, which is specialty materials where we are the acrylic upstream for Europe and U.S. This is where we have a significant integration. And because the integration you have seen in the past 10 years, we have been able to build a model of specialty, which is rather resilient, and where between the upstream and the downstream, you have some composition factors. So this is one. And now the point you mentioned, it's clearly mostly focused on the acrylics in Asia. And you benefit from this new segmentation where you have as intermediates a big part of the contribution, which is coming from fluorogas and acrylic in Asia and a big part of the growth which is coming from acrylic in Asia. So I think you have a picture which helps you really to understand where we have a superior increase. Now once I've said that, it's clear that even in Coating Solution, in this very special year, you have some over earnings, which are linked to the special situation in acrylics that you need to appreciate. But overall, our improvement in Coating Solution is also significantly coming from the downstream. Now I hand it over to Marie-José to complete your element on CapEx.
Okay. As I mentioned in my speech, basically, the total CapEx for 2021 is expected at EUR 750 million. And it includes, in fact, a peak of spending in exceptional CapEx, which amounts in '21 to EUR 250 million within this total of EUR 750 million. So this should decrease next year as the projects come to completion by roughly EUR 100 million. So all in all, I certainly expect the total CapEx to go down by the same amount.
Is that clear?
Yes.
Maybe another point I would like to mention, and this is where -- what we are very proud of this year, is that this year is not really the story of one product line or one specific element. It's really a sum of plenty of elements, which helped us really to deliver a superior growth in every element of Arkema. So if you look year-to-date in Adhesive, despite all these difficult -- operating difficulty with raw material, with logistics, I think it's quite a good year, and which, frankly speaking, you are hopefully pleased about the development in acrylic. If you take HPP, which is mostly based on innovation, really, it's a very, very strong year. Clearly, Performance Additive is more in a cash cow mode this year because of different element, but it's still a solid performance. Coating Solution is really quite strong, but coming both from the upstream and the downstream, which is very nice to see. And then Intermediates is better than expected. But overall, it's really -- and this is what should be good for you, it's really -- this performance of the year is not a 1 point or 2 point. It's really a sum of different points. And we came to appreciate this content, which is quite diversified.
Next question is from Mr. Laurent Favre from Exane BNP Paribas.
Thierry, I was wondering if you could talk about inventory levels in Advanced Materials. It sounds like inventories for your customers are very tight in adhesives and coatings. But in Advanced Materials, I was wondering what the situation is there, in particular, in HPP, where your sales went up massively versus Q1 and Q2, even if one of the key end markets like auto actually saw a production decline. So that's the first question. My second question is on Advanced Materials margin. I think you're targeting 22%, which is a stable margin through 2024. You're obviously on track to beat that this year. I was wondering if going forward, you are still driving the business to get to 22% and focusing on growth. Or do you think there is upside to that margin target? And then the last small question, free cash flow for Q4. I was wondering if we should expect the big seasonal inflow of working capital in Q4, or whether you're trying to build up your own inventories, and therefore, we shouldn't get too carried away.
Okay. So Marie-José will answer the last one. I will start to answer the first one. And certainly, Marie-José, because it's linked, will answer a part of the first one. I think you were not talking in the first question about the stop of our customers, then of our sales.
And in particular, in HPP, where you're incredibly high in Q3.
In fact, I agree this is maybe in Advanced Material where we have a decline in certain end markets, the majority is robust. But we have a decline in certain end markets, and you could maybe expect some of the stock here and there. But it's not the case. Even in auto, the decline is coming from the lack of chips. So in fact, they simply don't have enough stock. And so I think -- I don't know how long it will take to get the shift back to normal. But then it will mean restocking from the automotive industry at that time. So overall, my feeling is that the level of stock in the chain, including ourselves, in fact, and it will be a part of the answer of Marie-José, is still rather tight, not as tight as it has been after the COVID and the rebound. But I would say still rather tight. So it's certainly an element which will be supportive in the next year, even if in certain end markets, you can have some less raw business than this year. I would say, overall, some restock will help next year in a certain point. With regard to the margin target -- and sorry, because I did not answer for Coating Solution before, it's a little bit the same question. We are -- compared to our -- which is good news. We should not complain. Compared to our midterm target, we are overall both in Coating Solution and Advanced Material. And the question of the -- 2 question, yours and the one before, was, does it mean that we can do better than our midterm target? Or is that -- basically, shall you consider that what is on top should be considered as overall earnings and would disappear? And basically, I imagine this is -- you have the W.
I guess that's describing also on coatings, but now in Advanced Materials, [indiscernible] question.
Okay. So no, I think that, again, it's more a question for Capital Markets Day because we need to take our time really to look at things in details. But clearly, it means that we should at least deliver the percentage that we have mentioned for '24, which means that for you, what was the question mark become a certainty. Now can we do a bit more? Maybe. Maybe, but it's too early to -- we need to take our time. Clearly, we are more than on track from a percentage standpoint. Now is that -- does it mean that we should be above? You can believe it, but I prefer to answer this kind of question in a more formal way when we have Capital Market Day because it's more question for midterm of Capital Market Day. But we are very pleased by the fact that we get more value on this new business development. So it goes to a certain extent with the evolution of our mix, both in coatings and in Advanced Materials, and it should help. But again, for me, we had a starting point. We announced target for '24. The first reaction to the target where, they are a little bit ambitious. Now we have the answer. They are more than realistic. Can we do more? It's a little bit too early to confirm. Okay?
If I [ may add in ], in fact, the reasoning beyond [ the rise in '22 ] because we were adding the Singapore plant, and therefore, bringing capacity to the market. And therefore, the ambition was definitely to manage the ramp-up rather than go and chase after, let's say, increased margin levels. So this was basically behind the reasoning of the '22.
Yes. At the same time, it's true that we have a lot of niches, including privilege, which are doing fine. So this is why -- and thank you, Marie-José, for the complementary point. It's always a sum of elements. And it's always important to take the time to think about it. And this is what Capital Market Day are made about. It's really to rethink about what we have done and to confirm where we are. But the good news for all of you is that we are really on track of what we have announced for '24, and we are pleased about that.
So then if I come to the free cash flow question for Q4. So as I mentioned, it's fair to say that our working capital level is today a bit below, let's say, what we consider is a normative level, which is closer to 14% of our sales versus our current position, which is a bit above 12%. So definitely, our intention is to try to rebuild a bit of the volume in stock. And today, the increase in the stock value is, in fact, 50% coming from volume, 50% coming from price, if I give you a ballpark assessment. And therefore, I would definitely still believe in Q4, we should -- in fact, probably for the first time in quite a number of years, not really been in the kind of recurring trend that we had historically in terms of phasing of the year. I still believe the working capital should, in fact, not decrease as much as it was the case in previous years and remain, let's say, kind of flattish versus our Q3 level. This is what I am projecting at this point.
Next question is from Mr. Philip [indiscernible] from [indiscernible].
I have a couple. Firstly, on -- first of all, by the way, very great logo, so well done. Firstly, on PFAS, sorry to ask this. But just wanted to understand what is our PFAS position here sort of officially, especially in the light of what is happening in Europe with regards to 3M and Belgium. You're changing your raw material mix significantly in -- with the Nutrien project changing the eco footprint for the flooring chain. So if you can just remind us on the PFAS topic. Is there any reason for us to worry or you're indemnified by Total for the New Jersey side, and we shouldn't worry except for that? The second question is a little bit tricky, but I'm just going to ask it anyway. In theory, you've done everything you promised over the years, and the stock is still sort of sub-7x or 7x. Now Bostik becomes a EUR 550 million EBITDA asset. What would be your answer to an approach where you're sort of pushed to spin off Bostik to have value unlocking? So in other words, I'm just trying to understand how would you tackle a situation like that. What is sort of your way to unlock value and still keep everything in the current structure? And then the final question really is around M&A. There are a lot of funky polymers which are specialty polymers in the polyamide chain that are coming to the market from both sides of the Atlantic. Just wondering if you're very happy with your polyamide exposure or would you care to sign a few more checks on the M&A side.
Okay. So I will be quick on your questions. Thank you. So with regard -- I will take the last one, on M&A. So first of all, we are very pleased with our positioning of today in HPP. And I think you read the numbers. It's obvious that we should be very pleased, and the feeling are the same. There are some names which are looking for some strategic review. Certainly, as every strategic review, we look at them and we see if we get positioned -- a position. I think we have not transferred today is part of ongoing strategic review, if time somebody is making a move and to see if it makes sense for us, not at all. So we'll see. I think the good thing with Arkema is that we have a very good positioning. So there is no urgency to make any moves. We could stay with what we are. And each time we make a move, this is because we believe we can create value for the company. So we'll see. So I have no answer, except that we'll -- we have this flexibility to be able to review ongoingly what we do in terms of M&A. With regard to the -- I was surprised with your second question. As you know, we have been in the business. It's now the spin-off. So where we started with a company for which the share price was EUR 27. I think we are above EUR 120 today. We compare with nearly all our European peers, okay? Which is the value creation? So you can read that it could be better. Maybe you will be able yourself to do more than that. But frankly speaking, it's a fantastic story on value creation. You -- in terms of -- you should also spend time to read again what has been communicated at the Capital Market Day last year, which has really a fantastic presentation of explaining what is a science of material. And if you want to learn more, we can share with you between Coating Solution, Adhesive and Advanced Material, it's really a [ completely current ] portfolio. It goes together. You cannot imagine yourself how many customer ask us to come really as a group in order to feed with new innovation in the science of materials because you can stick material, you can substitute material, you can create new materials, you can cut materials. It's a unique offer. We took 15 years to build it. We are very proud of it. We have created a lot of value. And as you are mentioning, the multiple, but I'm not to judge myself a multiple, give us a lot of space for further value creation. So we are in a very good situation. So -- but clearly, we have a portfolio we like, that we have been over the years. It has been really a long journey. Now we have a platform which is, frankly speaking, very attractive for the coming years, which is very coherent, a lot of synergy, incredible synergy between the different platforms. And we'll continue to develop this platform on these [ 3 feet ]. And the -- at Capital Market Day, and I think we have delivered a lot in the Capital Market Day last year, I was very clear on what is our strategy, what we want to do. And we like the support of our shareholders, long-term shareholders on this strategy. With regard to PFAS, we have no specific news to comment. Otherwise, we would have done it. So I think if you read the reference documents, you have the elements you need to have on this issue. On Nutrien, yes, you're right, and thank you for mentioning it. It's a very strong project in terms of eco-footprint, and because the way to make HF, not from a mine, but from -- starting from a byproduct, from phosphate, in fact, is -- in terms of impact on the environment is so much more positive. Now the team are very proud to have implemented this breakthrough technology, and it goes certainly in the right direction. And with the names you have mentioned with regard to their environmental impact, whatever, I cannot comment on other companies. I mean, they are different from us, so I cannot answer for them.
Next question is from Mr. Rob Hales from Morningstar.
Rob Hales from Morningstar. Just one question on Adhesive Solutions and pricing versus raw material changes. I think historically, the lag was quite long, maybe 3, 6 months or later, but that seems to have pressed now. So I'm just wondering, is that -- is there a structural change in terms of your pricing negotiations customers? Or is that just truly because we're in an exceptional environment right now? And a year from now, we kind of go back to that historical 6 months' lag or so?
No. I think there is -- I don't want to [indiscernible] your question, but there is a lag in the adhesive. I think the adhesive is certainly the most difficult part of our portfolio to pass through raw material because it's more downstream. And this is why the performance we have done is very good. So -- but the performance is a sum of plenty of elements, working on the productivity, reformulation, product mix. I've always said that Bostik is in a permanent transition, and we started from a low point, at 10% of EBITDA. We target now 17%. We are in the middle of the -- a little bit beyond the middle of the journey. And the journey is made of plenty of elements. So we have certainly a significant headwind coming from raw material. And I can tell you, it's not easy. So we have a lag clearly between passing raw material and getting the raw material improved. But at the same time, we work on the project mix. We have more and more innovation. And we work on the cost. And because of that, we are able to gain 1 point of EBITDA compared to last year, where not a lot of our competitors have lost some ground. So I think it's a story of rebuilding from a point which was okay, but low compared to what was our ambition and compared to the best peer. And now we are really completely on track with our ambition. So no, I mean, nothing has changed for sure in this market, okay? Still the same. Because in downstream, it's not a matter of what business, what positioning. It's just is the nature of more downstream business compared to a more upstream business. It takes more time and you have lag. So you have still lag. But with everything we are doing, we were able to compensate that. I will take a last question because time is running. But if you have more question, don't hesitate to come to Beatrice and Peter.
We have one last question from Mr. Jean-Luc Romain from CFC.
It relates to HPM and particularly...
Can you speak a little bit louder, please, Jean? Because your...
Okay. My understanding is that HPM could be very good material for recyclable windmill plate. How are you progressing to qualify this material with the main builders of windmill plates?
So we are -- it's true that Telium, which is part of the new polymers we have developed over the past years, and it's to develop a new polymer, but we have a few of them like PKK, is another one. As you mentioned, fully recyclable. And we know the process to recyclable with chemical recycling. Difficulty with a blade for windmill is that you have a long homologation. But we now are close to a full homologation of 20 meters blade. So we are on the right track. Now we -- hopefully, we'll come to have -- you'll start to see in the next couple of years blade with -- made of helium, which is certainly a unique material. And I don't think there is another one which is recyclable. So not only recyclable, but what the product once recycled is of the quality of the product before, difficulties to have the same usage. And so we are very satisfied of the development. And I would say it's for it a matter of a couple of years to start really to see some ramp-up. But it's a long shot by definition of this kind of breakthrough. Thank you. Thank you to all for all your question. It was very interesting. And hopefully, you appreciated the quality of the result this quarter. And don't hesitate for any further question to come back to Beatrice and to Peter. Thank you.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.