Arkema hopes acquisitions, start ups will lift results after a poor Q3

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LONDON (ICIS)–Arkema’s group share net income fell 69.2% year on year to €20m in the third quarter of 2014 as sales dipped partly because of the deconsolidation of its coating resins companies in South Africa, the French producer said on Friday.

The company’s sales fell by 1.1% to €1.48bn in the third quarter, while earnings before interest, tax, depreciation and amortisation (EBITDA) were down by 12.9% at €203m, the company said.

“With the announcement of the project to acquire Bostik, the finalisation of the construction of the thiochemicals platform in Malaysia, and the acquisition from Jurong of a 160,000 tonnes acrylic acid production line, Arkema is completing a major investment phase,” said Thierry Le Henaff, chairman and CEO of Arkema.

“2015 and subsequent years will benefit from these various projects. The group thus enters a new phase of profitable growth with strong and regular cash generation,” he added.

By divisions, Industrial Specialties benefited from stabilising conditions in the fluorogases market, said Arkema, and a good performance in thiochemicals. Sales at this division stood at €476m during the third quarter, an increase of 4% compared to the same three-month period in 2013.

As a result, Arkema said the EBITDA at Industrial Specialties had grown for the first time since the first quarter of 2013, increasing 2.7% in the third quarter to €76m, with the EBITDA margin at 16%.

Volumes increased by 4.5% and the price effect stood at a negative 0.5% on the back of lower fluorogases prices, although these were offset by higher prices in polymethyl methacrylate (PMMA).

Coating Solutions reported sales declining, by 3.9% during the third quarter of 2014 to €540m, with EBITDA falling 21.5% to stand at €62m, and EBITDA margin at 11.5%.

The volume effect stood at a negative 0.7% following the shutdown of its activities in Chauny, France. Volumes rose in Asia in anticipation of the integration of the acquired Jurong’s acrylics assets, although demand remained “moderate” in paints in Europe, said the company.

“The performance of the Coating Solutions segment reflects, as expected, lower unit margins in acrylic monomers following the start-up of new production capacities in China. Market conditions in this activity were now close to their cycle low and should remain at this level through the end of the year,” said Arkema.

Arkema’s High Performance Materials division achieved sales in the third quarter of €457m, up 1.5% compared to the same quarter in 2013, with volumes growing 2.5%, supported mainly from growth in the company’s US activities, but that could not prevent EBITDA falling 11.8% to €75m, leaving the EBITDA margin at 16.4%.

Prices had a 1% negative impact at this division, which in general benefited from a stabilisation in the polyamide 12 markets although the company conceded its performance was poor compared with the same quarter a year earlier.

Looking ahead, Arkema is confident the announced acquisition of adhesives producer Bostik will help it boost sales and EBITDA, although some analysts have said the price the company is paying for it (€1.74bn) might be “too expensive” (investment bank JP Morgan Cazenove) while others noted how the success of the acquisition, due to the high price, will be dependent on the disposal programme the company is to embark on (bank UBS).

“The offer is made on the basis of a €1.74bn enterprise value and will be financed through a share capital increase with preferential subscription rights for existing shareholders of around €350m, a €700m issuance of perpetual hybrid bonds completed on 23 October 2014, and a senior bond issuance for the balance, i.e. between €500m and €600m,” said Arkema.

According to Gilles Marot, the director of the company’s main research centre in France, located in Normandy’s Cerdato, said although Arkema is paying a lot for Bostik it is “confident in two or three years the benefits of the operation will be clear.”

Equally, the company is confident the start up of its new plant in Clear Lake, the US, for the production of 45,000 tonnes/year methyl acrylate will help it strengthen its position in the US.

“In this context and while remaining cautious given the volatility of the macro-economic environment, Arkema confirms its 2014 target of an EBITDA close to €800m. The Group also confirms its 2017 target, adjusted in September 2014 to take account of the project to acquire Bostik, to achieve €1,31bn EBITDA, as well as its long-term targets,” said Arkema.

Additional information by Nurluqman Suratman