LONDON (ICIS)--Arkema’s second-quarter net profit increased 8.8% year on year to €160m, backed by higher margins from its industrial specialties business, the French producer said on Wednesday.
Sales for the three months ending June 2017 were up 12.6% year on year at €2.20bn, with earnings before interest, tax, depreciation and amortization (EBITDA) rising 16.7% to €398m, the company said in a statement.
Overall EBITDA margin for the quarter increased to 18.1% from 17.5% in the previous corresponding period, largely on account of the stronger margins from the company’s industrial specialties segment at 25.1%.
Its high performance materials and coating solutions segments posted lower margins at 17.6% and 12.8%, respectively.
Arkema’s adjusted net income for the June quarter grew 28.4% year on year to €172m.
The company has raised its full-year EBITDA target to between €1.31bn and €1.35bn EBITDA, in view of the strong earnings performance in the first half of 2017.
Despite declining margins for EBITDA at the High Performance Materials, the division posted 12.6% higher sales in the second quarter, year on year, to €990m, and EBITDA rose 5.5% to €174m.
The division benefited from the integration of Dutch sealants producer Den Braven, acquired in December 2016 for €485m, although it was partly offset by the divestment of small business lines – the carbon and filter business – causing sales at constant exchange rate and business scope to rise 5.1%.
“Volumes grew by 2.9%, driven by the benefits of innovation, in particular in Asia in Technical Polymers, where demand in lightweighting, new energies and automotive is strong.
Demand was also favourable in specialty molecular sieves for petrochemical applications with the ramping-up of the new Honfleur unit (France),” said Arkema.
The company concluded in April a €60m expansion at that site which doubled production capacity for molecular sieves dedicated to the separation of aromatics in petrochemicals, especially xylene separation, the company said, without disclosing total production capacities.
“The price effect [at High Performance Materials] was positive at 2.2%, reflecting the group’s actions to adjust its sales prices to higher raw material costs. The currency effect stood at [minus] 0.1%.”
The company said it was satisfied with the EBITDA margin slipping to 17.6%, down from 18.8% in the second quarter of 2016, as it was “resisting well in a context of higher raw material costs and despite the impact of the large maintenance turnaround” at its specialty polyamides plant at Marseille, France, during the second quarter.
Arkema’s Industrial Specialties division posted sales of €701m during the second quarter, up 15.1% year on year, sales volumes (up 4.5%) and pricing power (9.5%) stood higher than a year earlier.
Industrial Specialties’ sales at constant exchange rate and business scope grew by 14% year on year, said the company.
EBITDA at this division benefited from higher sales volumes and prices, jumping 31.3% to €176m. EBITDA margin stood at a healthy 25.1%, considered a high level within the chemical industry, up from the already positive 22% posted in the second quarter of 2016.
The company’s Coating Solutions division posted sales of €499m, up 9.2% year on year, supported by a 13.6% higher pricing power and despite lower sales volumes, which fell 4%.
The company said it had been able to increase prices for its acrylic products after “actions to raise sales prices in the entire” chain.
EBITDA at this division barely rose during the second quarter, up €1m to €64m, and the EBITDA margin actually fell 12.8% from 13.8% in second quarter of 2016).
“Volumes [at Coating Solutions] were down by 4%, and include the impact of the large maintenance turnaround at Clear Lake in the US in acrylic monomers and of inventory adjustments at certain paints and coatings customers following the very strong start to the year,” said Arkema.
“The divestment of the oxo-alcohol business [to European chemical major INEOS in March] resulted in a [minus] 1.4% scope effect. The currency effect was positive at 0.9%.”
Looking ahead, and despite the updated EBITDA guidance issued earlier in the day, the company also said it expects the global economy to remain “volatile” in which European companies would face a higher euro versus the US dollar and higher raw materials costs which would end up been passed through to customers.
“The group will continue to ensure that the higher cost of certain raw materials is reflected in its selling prices,” concluded Arkema.
In July, the company's top executives discarded potential large mergers and acquisitions (M&A) in the coming years, adding the company would seek growth organically by adding to its current strengths instead.At the time of Arkema's capital markets day (CMD) in Paris on 11 July, the firm announced large expansions at its Asian operations for thiochemicals and resins and the construction of a €300m polyamide 11 (PA11) plant which will biosource its feedstock from castor-oil, the location is however not yet decided.
(Update re-leads, adds divisional performance, outlook from paragraph 7)
Additional reporting by Pearl Bantillo