Arkema expects €40m-50m earnings hit from coronavirus in Q1

LONDON (ICIS)–Arkema expects to record a €40m-50m hit to first-quarter earnings as a result of the coronavirus pandemic started in China in January and now with Europe at its epicentre, the CEO of the France-based producer said on Thursday.

The estimate is a significant increase from the €20m impact on earnings before interest, taxes, depreciation and amortisation (EBITDA) the company had projected for the first two months of the year in late February, indicating the extent that disruption closer to home is impacting on European producers.

The estimates for impact in January to February were correct, according to CEO Thierry Le Henaff, but the substantially larger figure for the quarter as a whole is based on the westward spread of the outbreak.

“When we gave the [earlier] guidance Europe was not yet affected,” Le Henaff said.

There is no visibility at present on the total impact for the year, he added.

Arkema’s EBITDA stood at €295m in the fourth quarter of 2019; in the first quarter of 2019, it came in at €370m.

The company is due to release first-quarter results on 6 May.

Companies, policymakers and economists are all scrambling to get a handle on the likely economic impact of the outbreak and the harsh containment measures initiated that have seen populations locked down and businesses closed.

Actions taken by Arkema at present to help absorb the impact of the crisis include strict monitoring of working capital, prioritisation of capital expenditure levels that could see investments reduced or postponed, and tighter controls on operational spending.

The company is targeting leverage levels of no more than two times EBITDA over the next few years, and goes into the crisis having paid off its next three years of debt maturities.

Liquidity currently stands at €1.5bn and Arkema also has €900m in undrawn financing facilities, according to Le Henaff.

The company has also set up crisis management cells centrally and at each of the regions it where it operates.

“We are confident in our ability to get through current turmoil safely and exit in a position of strength,” Le Henaff said.

The company, which is restructuring its operations, has placed its more cyclic chemicals operations into a new division, intermediates, which encompasses methacrylates, fluorogases, and Asia acrylics.

The plan is to rebalance some parts of the businesses and find alternative arrangements for others, but discussions of sales and partnerships cannot begin until the crisis has passed, according to Le Henaff.

“In the current climate this kind of discussion cannot happen and cannot start until the crisis is behind us,” he said.

Front page picture: Arkema’s facilities in Leuna, Germany
Source: Arkema