Ladies and gentlemen, welcome to the Arkema's Resubed Conference Call. I will now hand over to Marie Jose Baozun, CFO. Madam, please go ahead. Thank you very much. Good morning, everyone, and welcome to Akima's quarter 3 2020 results conference call.
I'm here together with the Investor Relations team. And then as usual, in addition to the press release, we have posted on our website the slides which detail the 3rd quarter performance. So before going through the financials in a little more detail, let me highlight the key points of the third quarter. So first of all, I said the the 3rd quarter results are solid in terms of the context and show the significant improvement related to the 2nd quarter. Overall, organic sales in Q3 declined by 8.9%, slightly better than the guidance of a 10% organic sales decline that we provided in July.
In spite of a negative ForEx and scope effect, the quarter 3 DBA a decline of 20% is also moderated versus the 2nd quarter. Another important highlight is, of the quarter is the cash flow generation as we generated free cash flow of 1,000,000 which is a record for third quarter, thanks to the strict working capital management and contained capital expenditure. In the M and A front, we closed the acquisitions of her fixed assets and EDAL work on 1st October, which means that in this year of COVID, we have closed three bolt ons in the other segment, including LEAP at the beginning of the year. These past months have also been particularly fertile, with regards to CSI initiatives. So in June, we announced that we had joined the well business Council for sustainable development, working in partnership with this network to accelerate the transition to a more sustainable world.
In October, we successfully issued our first ever green bond for an amount of 300,000,000 new homes, giving investors the opportunity to contribute to the development sustainable solutions in Specialty Materials. This project is the first of its kind in so far as it is fully dedicated the financing of one project, mainly our new Worldscape plant in Singapore to manufacture the 100 bio based polyamide lever. As you may have seen, as well, last month, the Wall Street Journal Services Place of the 100 Most Sustainable Companies in the World, and I'm very proud of the fact that we were ranked 11th amongst 265 global companies shortlisted. In fact, Akama ranked number 1 in the chemical sector, which rewards all the efforts we have put in to improve our sustainability profile. We are also proud of our team as ranking as the 14th best employer in France according to the Forbes Magazine's World's Best Employative.
For 2020, which I believe reflects our ongoing actions to promote work life balance by visiting the workplace and enriching career path. And last but not least, a word on innovation. Among the many achievements this year, I will highlight 2 key ones in the past month. So just a few days ago, Akema was awarded the 2020 Piazza K price for its early on liquid thermoplastic resin. Care Cote is a major prize for the chemicals industry in France, which rewards innovative products, linked to sustainability and a core responsibility.
And this is the 3rd time actually that ARC came up as won this prize after the success of China back in 2016 and recent in 2013. I also wanted to elaborate, on our 0 waste blade research project, named Zebra, announced in September. Akhima will actually take, parts in a consortium to create the first one as and recyclable wind turbine. So recycling end of flight wind turbines is a key environmental challenge for this industry. And, and together with Bostik structural adhesive, our Indian thermal plastic resin is key for this project.
As it is completely recyclable and has exceptional physical mechanical properties. So this project is fully in line with secular Economy approach and confirms our key material contribution in sustainable materials. So, let's now take a closer look at some of our financial figures for the third quarter 2020. So as you could see, sales, were officially down, 13.9% compared to last year. At 1,900,000,000, which corresponds to a minus 90% organic variance versus the quarter 3 year 2019.
Volumes declined by 4.4%. So it's basically evenly split between volume and price effects. The volume reflects mainly the lower activity levels in Advanced Materials, I would say, especially in the oil and gas, consumer goods and general industry markets, which, overshadowed. In fact, good growth in, in batteries and solid sales in the medical and crop nutrition sectors within our Performance Addiques. In Intelligence, we saw lower volumes in Fluorogases on the back of a challenging end markets.
The trends in PMNA, are improved this quarter supported by a positive trend in auto. Bostic volumes were broadly stable which means basically back in line with 2019 or as a pre pandemic situation. As a strength is construction, offset the softer volumes that we've seen in IG in our industrial market. And finally, the quality of paint was strong and rose higher volumes within cooking solutions. Regarding the price effect, which contributes for the other half, of the organic variance, The decline, is mainly due to two factors.
I would say on intermediate price declines are linked to lower volumes. A mix challenging market conditions. In Coating Solutions, the price effect is mainly due to the lower property in price. And, we can see basically both in a a disease and advanced materials that we benefited from a resilience price situation overall. Moving on to the EBITDA.
So unlike the 2nd quarter, the 3rd quarter was affected by 2 elements, adverse elements. The first one would be a perimeter effect. As a result of the divestments of the functional polyolefin business back in June. And as well as adverse currency effect of, more than 3%, reflecting a weaker US dollar versus the euro. So we are currently basically, at 1.17 for the third quarter 2020, that's just a 1.11.
Third quarter 2019. But also, it's a weaker emerging currencies overall. So our performance as how are they supported, with how are they supported by our cost savings program? And a lower raw material prices. So EBITDA, the first two that are three 1,000,000, which translate into an EBITDA margin of 16.1%.
Which clearly remains at a at a high level. Looking at the results by segment, Adhesive Solutions EBITDA rose 73,000,000, thanks to the rebound of volumes. And the segment's EBITDA is actually, in terms of margin as as even that increased 50 bps to 14.1 percent. Advanced Materials EBITDA is down 20% relative to last year, for €127,000,000. The decline is is clearly driven by lower volumes and a negative currency impact.
Which partly offset our efforts to reduce the fixed costs. This being said, that 21% EBITDA margin, the segment's margin is clearly resisting well at the high level. Coating Solutions EBITDA is at 17% lower year on year at 1,000,000. That's a due to challenging market conditions impacting a stream, to the nonintegrated acrylic acid, which represents around 30% of the segment's savings. Results of the segment's other activities are broadly flat year on year, reflecting the good trend that we had in the current paint.
So I would say in line with what we observe in construction for Bostik. And, at 14.5%, EBITDA margin remained at levels, thanks to the benefits of the integration, upstream, downstream and lower fixed costs. In the intermediate segment, EBITDA of 55,000,000 is around, let's say, 40% below last year's level, driven by lower prices and volumes, but also impacted, of course, by the scope effect, linked to the divestment of the functional polyolefins. Aside sequentially though, the EBITDA of PMMA has improved while the situation for oil gases has remained challenging. So the rest of the P and L, I'd say, a little, a little surprise that depreciation and amortization has reached 1,000,000 and change versus last year.
That's why the recurring operating income, stands at 9%. Financial result is better than last year. So the improvement is mainly attributable to the decrease of U. S. Interest rates, impacting the net debt swapped in U.
S. Dollar in our portfolio. Regarding tax, the year to date rate, excluding exceptional items, is around 2% of recurring operating income, so in line with EBITDA, with the guidance. And finally, the adjusted net income amounts to a €109,000,000, which corresponds to a €1.4 per share. So moving now to cash flow and net debt.
I think free cash flow is clearly once again a at a good level, €285,000,000, reflecting the strict working capital management as well as lower CapEx. At, just below 14%. The working capital ratio on the annual annualized sales, is well below last year's level of 16.4. I'd say we are almost at the year end level as we where we stand right now. So in the context, of lower raw material prices and also also lower sales.
So I expect this level effect to be maintained in Q4. Total capital expenditure amounts to EUR 139,000,000, versus, 148,000,000 last year. And we confirm our guidance, our guidance of around 1,000,000 stand for the full year. Net debt stands at 1,000,000,000 at the end of September, including high grade bonds, And therefore, the balance sheet remains, of course, solid as a net debt represents 1.6 times by 12 months EBITDA. To conclude my remarks, a quick word on the outlook.
As you are, all aware, the fourth quarter is marked by a second wave of the pandemic in many countries, notably in Europe, which creates, uncertainty, definitely with a new sanitary restrictions been deployed by major countries. We cannot yet fully assess the impact of those are lockdowns on demand. But let's say the restrictions so far, do not seem clearly as drastic as they were in April May. So overall, we estimate that activity leverage should be in the continuity of the first quarter. Specifically, and this is our base case, for now, sales in the fourth quarter could be around, 7% below last year's level at constant scope and ForEx.
We think construction should continue to be supportive for Bostik and Coating Solutions, and we expect a more sequential improvement in high performance polymers. As a result, I'd say specialty material activities should decline less year on year in q4 than in q3. As as for the intermediates, there should, however, continue to be significantly down with a similar year on year decline in Q4 when when looking at the Q3 and Q2 as well. Looking at the various regions, we see the U. S holding up relatively well.
China is probably the strongest region and Estrella is again improving. Situation is more uncertain and certainly new hopper. With, the return of lockdowns in the past few weeks. But as I said, we should carry a less stringent, let's say, a restricted measure than what occurred in a tough quarter too. Akema will continue.
That's what we focus on elements within its control. So notably, the initiatives on the cost and the strict management of working capital and capital expenditure. And we will of course also continue to roll out the long term strategy, including the implementation of major organic growth projects, the targeted acquisitions, and the innovation assets in specialty materials to meet a sustainable development opportunities of our customers. As well as the strategic review for the intermediates in line with the ambition to become a pure specialty player by 2024. So this concludes my comments.
Thank you very much for your attention, and I'm now happy to answer your question. Thank The first question comes from Nudeja Shodoro from Citi. Sir, please go ahead.
Hi. Hi, Mercedes. Thank you for taking my questions. Just, 2, please. How should we think about the raw material that you're in Boston?
As we go into, say, the fourth quarter and then going into into 2021 as well. Could it could it potentially turn into a headwind? And and are you are you likely to introduce any pricing initiatives, even if it turns into a a headwind, one. And the and the second question is more around your comments around the batteries in high performance polymers. You provide some color on how big that business is at the moment in all our communities?
It it looks like it's a delivering strong growth. So just some context around how what the size of that business is. And then it's finally on on cycling because you can just provide some comments around the the volume pick have us evolving, given the the the the ramp up. That'd be very helpful. Thank you.
Okay. Thank you for question. So, regarding the raw material effect, I just said that This index is, is, clearly showing a decrease in, in, raw material price. I'd say, my assessment right now overall for Akima is that there is, let's say, kind of net 0 to a slightly positive net effect, on a pricing. So the pricing to customer minus the the again, you know, the profile, of of the prices are very much for, let's say, in average and sales here.
So we are in an annual, type of negotiation, process. Which, as I've revealed, let's say, some, headwind when the prices are going up and it's clearly more supportive when prices are going down since it, it creates a lager. In between what the market and the raw material price is doing and what to pass on to to to the customer. Access is the volumes are, right now, pretty pretty back. Compared to a last year level of activity.
I'm thinking the situation should remain, I think, slightly positive in the same way. It is currently. I don't see a short term, a short term issue popping up. Yes. So you are correct.
I mean, in the end, the pricing is a is a constant, you know, constant fighter and, and in the current environment, it is, it is something we extremely, but right now, I would I would believe, it's still phenomena that is supporting the margin rather than the opposite. Regarding the batteries, in high performance polymers, Actually, this this message is clearly developed, frankly, frankly, very well. So it's probably, one of the two businesses that in the in the current year has grown. Now it's a double digit in volume. Compared to last year.
The thing, the thing is when you start with low volume, of course, even if the growth is a double digit, it's still obviously needs to increase further to have a very material impact on the on the bottom line as well, but definitely it's an area that is friendly encouraging, and, and, and and should continue to, to further increase its contribution as we move as we move along. As you know, there are a number of players in this, in this market. We think our technology has actually a good differentiation to to be successful and and, and, actually, the growth is, is proving that it's well, well received by customer. We are mainly on a lithium ion technology, but lithium ion technology, but Actually, R And D Works, also on Solid, solid Technologies. And, despite we don't disclose the size, let's say, by type of application, it's it's definitely, I think a very positive feature in the portfolio of the of the Advanced Materials.
Regarding Thiochemicals where you said the picture is is the kind of an impact that you know, this activity serves, so I would say roughly 50% in attrition, 50% oil and gas. So oil and gas is quite depressed, at the moment, which was actually not at all the case last year since you know, the regulations regarding the centralization of managing, transportation was actually pushing a lot volumes. So this year, clearly, this partial of the activity is, is, can you like to pursue it? But nutrition is is the company is to be quite severely answer. So, again, a mixed bag, a mixed bag overall for this business, but I would say it's the impact of the strong businesses that we have in our portfolio.
Thank
you very much.
Thank you. The next question comes from Matt Chunget from Bank of America. Sir, please go ahead.
Hi, good morning, Marie Jose. First question is, can we just get an update on where you are in terms of the PMNA disposal process, anything you can say about timelines there and and the extent to which that process gets complicated by COVID restrictions. The second question is for your downstream coating business. Just because DSM said the other day that we felt the resin market needed to consolidate but they didn't wanna play a role in that. I know when Aquila tends to get asked about M and A, the focus usually is on adhesive.
But can you talk a little bit about your strategic ambitions in the coatings area and and what you can do to to further reduce the length you have in
in the acrylic molecule? Okay. Thank you, Matthew. So, so regarding payment process, what we have mentioned is that, obviously, we've been, we've been, quite open regarding the strategy of, of, of exits of this business, from the portfolio. So as you know, we, we have initiated works on, the carve out in Germany.
So since it is a disposal, actually, it's quite classical, but you know, the company can, can, prepare in advance a number of things for information in one of the individuals. So the data room is is built. So again, the process is ongoing. There is a bank to support us in this process. We we see actually a a good interest from the market or so in light of, of also the the the resilient performance of of the business in quite an adverse, economic environment.
So so far, it's a little more to to be, to be settled. What we think is that, in light of the current situation, we think the process, should happen, let's say, in in the coming, non season, of in terms of accusions, but we don't expect, you know, a resolution of of this, of this process, in a matter of a a few days away so that we also don't expected to take a several several years and finish by 2024. So if I had to bet, I think in the in the first part of the of the strategy plan, that that is the likelihood the process can be can be executed. So now to be precise on the timeline is is very difficult because, as you know, the the definition of a business plan and and the evaluation is is something that is not fully stabilized in the in the current environment. So so this is probably, what will impact, let's say, the timeline of the and of the process.
But so far, I would say, you know, there is no, no particular or news flow. That, that deserves, you know, any any communication. Let's, let's continue to progress and have the various, interested parties at Crest, their their views. And then we'll see. Regarding the downstream of quoting division, you are correct and this remains the next year where we want to reinforce the for you.
So the level of integration, as I said, in Europe, and, and, US is, is still Let's say around 50%. So so clearly any further integration that we could do in this area with the strengthen. In fact, the resilience of the margin, which already today, I think, is is at at a at a good level, in fact. Then the question is the nature of the integration because as you know, there are activities that UTI is a lot of actually tested, but from which, let's say, the relative margin contribution is not as robust, maybe as what we ourselves already have in the portfolio. So I'm I'm not really pushing for, you know, buying, for instance, to perhaps solve this, despite it would be a major downstream, my credit, let's say, further reinforcing the level of integration of the portfolio So it's it's self recognized.
We have a certain, selective approach where what we would like in fact to to new cat is more in line with what co attacks of Sartomer type of downstream represents, we can go into, what are treatment, into free printing, and so, it's a type of certification that allows, let's say, some some high end, downstream rather than just any downstream. So this is the type of selection that we try to that we try to to implement when looking at potential M and A. On downstream or downstream coating business. Okay, thanks. The next question comes from Geoff Air from Medias.
Sir, please go ahead.
Good morning. Thanks very much for the opportunity to ask some questions. First of all,
a simple one. Are you sort of suggesting
that the EBITDA you're going to generate, sorry, EBITDA margin you're going to generate in Q4 would be higher than the one you generated last year? First of all. And then secondly, just on CSR, stuff that you're talking about, can you tell us how much CO2 I'll keep up in mix a year. And what percentage of that, and that percentage of CO2 is exposed to carbon trading schemes around the world, please?
So, in fact, we have not guided on EBITDA. We are guiding on on, on revenue. So I've not, I've not expressed, any comment on EBITDA, but I'm I'm as a surprise by the conclusion that Nadia High from what I said on the volume, actually, Since, my comment is that we expect let's say Q4 to be at minus 7%, organic volume compared to last year Q4. So, logically, you should conclude that EBITDA should actually be lower in Q4 than last year.
I was asking about the margin, the EBITDA margin.
Not an absolute EBITDA. Yeah. Sure. But, in fact, you you see the, you see the size of fixed cost on our on our on after trucks. So, again, I I let you, make your own conclusions, but I think it would be, probably quite challenging.
So then regarding CO2. So as you know, we have, communicated on an ambition of reduction of our to emissions below. I mean, it's greenhouse gas, which is equivalent in a in a kilo tons of CO2. Which in terms of target represents below uh-uh 3000 offers q 2 by 2030. So this is the target we have.
And, and, basically, when you look at what was generated, back in 2019. We were above 4000 kilo tons of fuel equivalent fuel insurer by, by the group. So so this is an information that, basically is available on on the on the on the on the Achina site. So the trajectory that we have, as you know, is a science based regulatory, which complies with the virus, agreements and the deceased reports are well below 2 degrees. Approach for Arkema.
So now regarding your you you you were asking me if if some of those, uh-uh, tier 2 were subject to what?
Carbon Prairie schemes. Carbon emission schemes
around the world? We, I'm not I'm not sure. I I'm I'm I'm still I I'm I'm still I I'm I'm still I mean, what would be The question is about it today. We are balanced in terms of CO2, credit So, we, we are not, acquiring, only things to acquire. Any who is here to predict, at Akima level.
So we are an exciting fact, of credit limits for us kill a number of years. The next question comes from Emmanuel Mato from ODDO BHF. Sir, please go ahead.
Hello, Marie Jose. Hope you are well. Melanie speaking from Odo. The question from me. Regarding intermediates, when do you think prices will start to improve for Arkema.
How do you explain that? There was no improvement in Q3? For intermediates, despite less declining volumes compared to Q2. Second question, can you update us on your EUR 350,000,000 cost saving program related to COVID 19 for this year. Have there some of those cost savings which can become structural and not only comprise Are you also thinking about increasing those savings next year in the context of low visibility as collected to the pandemic?
And my last question is about Fluorogases. Have you started the process of selling Fluorogases? And do you think it may be more complex than for the PMMA business? Thank you.
Thank you, Emmanuel. So regarding the cost saving program. Clearly, the, the efforts have have, are paying more for My expectation is that probably we will exceed, in fact, the 50,000,000 cost saving, your cost program for for year end. By by your discount. So, so right now, can we, the program is well on park and, the the we should we should exceed, in fact, the condition by by end of the year.
Now I really do. In fact, the issue is how much of that can we materialize the structurally that he's addressed opportunistically because just the people are not traveling, and therefore obviously cost of, of, limb shrinking This is a difficult question because despite we have not been exposed to a lot of measures, you know, subsidies or we have not really applied for anything in the various geographies where we operate. So I think these are very, you know, specific, impact, which would come from the support of the various governments. I think it remains quite modest, at, at Arkema. So, on that front, I do not expect, you know, kind of, any, back effect, into next year.
Yes, it's tough to recognize that all the market insurance, the number on the traveling has been, not sure where the number of indirect costs in terms of team and and logistics are also significantly reduced. So mechanically, some of the costs our Kelly is linked up to the level of activity, that, that won't take place. If this level of activity is not coming back, clearly, the pressure is, is maintained on the structure in the same, in the same way it has been so far. We are clearly looking at various avenues to see if there are some synergies that can be implemented across platforms. So as you know, we've communicated earlier on the year when we announced the creation of the Coating Solutions, platform for instance, the segments, that by grouping a number of businesses there.
In fact, we charge rankings because we're working on the setup to see how we could, in fact, cut some some structure in this new combination. So we are definitely a number of opportunities. We are we are investigating to see how we can further, contribute to to saving structure, in light of, of the environment, which is, which is uncertain. Now regarding challenging. I would say, of course, we all know this part of the business is more exposed to a to a volume volatility.
If I take the case of Q And A, in fact, this business has been quite resilient in volume. That was we see a mix which is a little different because auto remains, below what it was, in volumes, so so, of course, there is there is some impact, some impact there. Fluorogases, carry is the the the outcome of of the combination of a of a low demand, plus, as you know, a pressure on price that, had been, initiated or heavy last year. These valuable imports reps in Europe and backing us, almost for the full year last year already. So it's tough to recognize that a fuel oil gas is ways significantly on the overall, intermediate performance.
And unfortunately, I don't see a covering in Q4 that is, which is the reason why. In fact, the guidance released at minus 7% or basically incorporates actually a quite negative, in fact, still on intermediates, and despite which is some some, some, progressive recovery, in the in the specialty materials quota compared again to, I mean, to Q2 and even to Q3. We still see a significant adverse impact coming from that particular segment. Regarding athletes in Asia, country, no big, no big change in the situation. I would say volumes are more stable, but the pricing are still at at a low level.
Today utilization of assets in Asia, it's clearly not, very, very high. Regarding the disposal process of Fluorogases, typically, yes, I see a more complex process, if I compare to PMM, because in fact, it reflects the complexity of the market and of that business, as you know, this business is highly regulated with a very different situations in, in US, in Europe, in Asia, and in China. And therefore, we think exit most likely, it's not gonna it's not gonna happen through, just the pure selling of the business we believe, probably the the the solution lies in, a more, specific approach, continuing by continent, not to mention, potentially even product by product. So this clearly, is the way we think about it. And that is why for short today.
My main focus is mainly on the on the NLAP MMA because this is, the scope where you can actually work. Even before, you know, what the buyer, who the buyer is and and what the buyer is needing to know to do because It's a full fledged, car valve, and therefore, you can prepare in advance internally. For curiosity, this is more complex because, still, you know, which geography, which product, you know, what type of agreement is this? The joint venture is used to, you know, what type of of, outcome, will will happen. It's very difficult to to build anything in advance.
So, so for sure today, I will share the full attention of the teams, miss Donnelly, very much focused on PMMA. I see more the the the MLA, situation of Fluorogases, let's say, happening in the second part of the road map, to 2024. So as I mentioned before, you know, mainly, I think it will happen in the 1st 2 years of the plan. I guess, we'rerogative. I think more clearly in the 2nd part of the plan.
Okay. That's useful.
The next question comes from Alex Stewart from Barclays. Sir, please go ahead.
Hello. Thank you for taking my call. My question is, I don't know what the right split is. It's Is it fair to say that the lack of office working across the world has caused a significant drag on AC, gas demand, and it's got a big part of the lower volume to be interesting. If you could quantify that, I know, how much of the market is, that is.
Secondly, and actually finally, the announcements a couple of days ago that DPI was taken a 5% stake in Arkema, does that change your ability to pay, or, return cash to buy back a company in the future as you laid out in early April devation to have your view on that too. Thank you.
Thank you, Alex. So on guesses, I would say, the split of the market, as you know, for us is, I would say 25% non initiative and we see this as a as a key. How much can be also Afro Polyneursa? And then 75% would be roughly comprised of any factor. And, and this is the best on which we would like to to clearly find an exit solution.
The initiative part, in fact, the main areas, the the product goes into. So you you would have air conditioning for car. So this is significant application. It's nearly 30%. Then we would have a definitely, a draft for air conditioning, let's say, for industry for this problem is another further flow.
And then you would have also, applications such as isolation for building the forms, this type of this type of application. So regarding HVAC, I mean, it's of course, the decrease in our in, our volume of activity, the the shutdown on some plants, some industry, the fact that people stay at home rather than go to the office and and and the 4 building are are potentially empty. Of course, it has an impact on the level of demand, that, that the that that is causing. In fact, the current situation and pressure on margins that we see in this business I I believe automotive has has also some contributions since people are after driving that they're at home. Thank you.
You also have the the impact of the auto industry that, indirectly, let's say, weighs also on the demand, on on fluorogases as well. I would say it's for a combination of the different driver. You know, when you're in lockdown and you hope the construction works last part, I guess, all regulations from the Tetra were also impacted by, some, some shortfall of of volumes during your period that normally corresponds to the peak season, let's say, of consumption of, of, of this refrigerant yet. So, so not only in fact, the Q4 is normally anywhere or there is no point in terms of seasonality for this business, classic guarantee, but on top of it, it's just to recognize that the company has the maximum impact, in Q2, which is normally in fact the strongest period of consumption So, of course, maximum effect on the contraction of margin for this business at that time. So, so all in all, the, the demand in Fluorogases, that has been impacted and and and we'll continue to to to to be impacted.
I believe in the Q4, I would imagine is similarly to what happened in Q3. Now regarding the BPI investments into, into Arkema. So thanks for asking. In fact, BPI accounts uh-uh-uh, sorry, through through the her founder, which is, named Laquana, as declared in fact the stake in Arkema over 40%. Clearly, what has driven the the entry of this shareholder is, I think, Arkema's strategy and road map to become a pure specialty player.
As what we presented in fact, during the the last, Capital Market Day for, we understand this is what attracted them and fits with their investment criteria. They seem to have a passion, in fact, for our technology, so they are very Tina to a further investment in companies with a high technology content. Strong CSR commitments. So the strategy was was extremely, clear and and the and the well received the them as the the the shift also to become a pure player of specialty materials. I think is a is a is a key driver for their, for their decision.
So so I feel a very, very good alignment and support to the strategy and the cash allocation, specifically. That we are presented during the the strategy, the strategy updates. So, there is no, no reflection of this strategy. On the contrary and full support, from this new, new shareholder regarding the strategy that we have presented to you and to the market back in April. The next question comes from Georgina Evumoto from Goldman Sachs.
Madam, please go ahead. Thank you. And hi, Marie, Jose. Hope you're well. Good to hear you.
I've just got one question left, and it's very similar to one that you had earlier on our teachers. I was just wondering, can you confirm the net impact on, price versus raws, including solutions was slightly negative in the third quarter. And then if you can maybe talk about how that trend might develop in 4th quarter and beyond. And then perhaps, like, on that note, if you can give us an idea about how you see pricing power, including solutions, is it somewhere that you expect to be able to react to warranty or price increases? Thank you.
So your question is mainly on proteins rather than on a disease. Am I correct? So it's not a problem. Yeah. Yeah.
Yeah. I was saying you had the same question on a since it's earlier in the call, right at the beginning. I was just wondering if you could give us an overview on coaching solutions. Okay. So as I mentioned on questions, still the so the integration, uh-uh, proportion that you play is around 50%.
So for sure, the the portion that is, as you know, there, we have normally a pass through of the evolution of calculating price. I would say in a matter of, a month or a couple of months is not So it's pretty straightforward. And and this obviously creates a lot of volatility on the on the price tenancy, not necessarily on the contract of the margins. In fact, the the downscreamer, which, basically, absorbed 50% of the fee of that volume, can absorb. And then if you can try from this reduction of, of accumulated and the definitely, basically retained some of that at their level, which allows us to, to, as you can see, compared to intermediates, margin erosion remains rather contained.
We are talking about less than a point of margin difference year on year. So, so the the the resilience is is is is actually quite good. And that's that's why I mentioned earlier in the call, I think it's important to to invite, I mean, going to the downstream and reinforcing the downstream in coatings. For us, it's very important to focus on the high hand in terms of value, of product value, rather than on volume. So the the integration is not for the sake of increasing the share of integration because as as as I mentioned earlier, super absorbent, for instance, which would allow Arkema to significantly increase the level of integration yes, the the the the the volatility of the margin which is our problem remained actually pretty high.
So it doesn't really fulfill the, objective, that, that we have to increase the resilience. So it's hard to recognize. We are quite selective when assessing the potential downstream integration that we could that we could further do in our in coatings. So at this point, I still see, let's say, as I mentioned, basically, we'll have to go stick in fact with slightly net, positive effect of the net price sooner. For that segment.
I was just wondering if I could be very cheeky enough, the very good question. It is fantastic to hear from you, but The area could speak to you in his absence, and just wondering if there was anything that you could see on that because he does normally join these calls. Yeah. It's fine. It's actually, I can do it on my holiday for a while.
So thanks for asking. This is actually and when the address actually depressed, in parallel. So, so then we splitted the workload. But that is no no particular signal. Okay.
No. Glad to hear that you will. Thank you. Okay. No problem.
The next question comes from shali Webb from Morgan Stanley. Sir, please go ahead.
Good morning, Marie. Thank you for taking some questions. Maybe just one on, the current kind of volume underlying organic trends you saw through the quarter, in the past, you've kind of helped us understand how that progressed sequentially. It's just understanding how that was through in the various months up to September. And then maybe it is possible also a sense on how October has gone so far.
That would be or has gone. Sorry. It's not done. That would be helpful from an organic growth perspective. And then second one, just around construction activity, obviously, a very strong recovery in in European Construction activity, French construction activity in in the in the 3rd quarter.
You know, how do you see that going into the end of the year? Obviously, there's some seasonality to consider, but just how do you see that trending into the 4th into 4th quarter. And and as we think about that, how how does that look for, for Boston considered leases?
So, thank you, Charlene. So, basically, when when he received the guidance, for Q4. I mean, clearly, we, we have the, like, the support of October in in in this exercise, so which, which basically is the line now with the guidance I'm leaving today. So at this point, we we see no disruption. In fact, no major disruption.
That's why we say it's pretty much in there, in line or letting the continuity with the quarter free quarter free performance and quarter free trend. So for this, you know, the basic, let's say the base case scenario that has led us to, to the guidance, of minus 7 percent, revenues, organic revenues, in Q4 versus last year that we are putting out today. Now in terms of mix of activities, what we see is actually construction re remaining at a at a good level. As you know, on this this new lockdown measures are clearly very different from what happened in the past quarter or 2. When construction works have been stopped, shops were being closed, etcetera.
So today, the contact is very different. You know, so for me, I mean, it could be frankly extremely drastic to consider. Q4 results were kind of Q2 pattern. Right now, this is not at all the case. And then from a worldwide perspective, you know, definitely, you know, I see Asia in better shape today than it was back in quarter 2.
I see a U. S. In fact, economy, resilience across across the pandemic. So, for us, right now, the main, the main signals that we observe are, again, in the continuity of what we saw in, in quota free. Because the environment is uncertain, of course, our industry doesn't enjoy account of a 6 month backlog or huge visibility on what's going on.
As you know, the average time time, between, receiving another delivery is a a matter maybe, 3, 4 weeks. So there is no such concept of a backlog. In fact, in chemical industry, and and and therefore, it's very difficult to credit, the what's what's going to happen. Now this being said from what I see, in October from what we see happening in November for basically the the small visibility we have. This should confirm, or at this point, basically, confirms the guidance we are putting, putting in the market.
The caveat, of course, is that if anything new was going to materialize and like any other company would do probably at the same time. But let's say today, it's fully consistent with what we see. Both from October mode and, let's say, the small visibility we have on the on the November. In terms of, sectors in the in the economy, it's it's a bit of a mixed bag because as as we mentioned, in fact, we hear some positive signals coming from auto. And, and and still for us, frankly, the volumes are not that, you know, very, very different or evolving very differently compared to, 2 quarter 3.
So We've been seeing industry and, and, automotive, including Automotive, basically, I think they hit recovery, rather than, you know, a v shape type of pattern in the recovery. So for me, construction should remain, in fact, at a good level, kind of back, you know, to a pre crisis, level. Fund segments that I've been doing, really well during the pandemic. So we mentioned nutrition. We mentioned health care.
Packaging as well. I've I've had a a a very resilient performance. We see maybe some, some destocking there. From, a bit of destocking. So that is why, overall, I see both stick relatively, stable, a second pack to what we have here in, in Q3.
I think, Advanced Materials is because in the free recovery is is very slow. Even if that there should be a gradual improvement, it should remain kind of modest. At this point, I believe And again, what I mentioned before is that I think the internships are waiting on the on the on our results. So overall, I think it's this this minus 7% is is a is a fair, is a fair assessment. Again, because of course things, as enjoyed, the benefits that we saw on construction, I think on that aspect on the decorating, it's performed well clearly on the industry side of the business.
It has been, clearly more impacted again by the overall industry performance. So again, another unique bag picture. So all in all, again, some, some very positive improvement compared to Q3, but no drastic change in pattern on 20.
That's very thorough. Thank you very much.
Thank you, John. Maybe your last question? Yes. The next question comes from Andreas Aina from First. Please go ahead.
Thanks for having the opportunity to ask the last question. Actually, 2 on a very small runs after under six times of call. In geochemicals, oil and gas is down as you outlined. The nutrition part is up. Am I right to assume that the, increase in nutrition is by far not enough to offset the decline in oil and gas.
And that in oil and gas, you do not see any recovery. Yeah. That's the first question. And second on the net working capital, which helped this year a lot in terms of free cash generation. Are now inventory levels at your end Tulos.
So do you have to assume in Q4 and maybe in Q1, that, inventories go up again so that you see on the flip side of the strong free cash flow in Q3 or year to date and in Q4 and then beginning of next year. Thanks.
Thank you, Andrea. So what what I mentioned is that, definitely, oil and gas is, is, as an as an observer impact on volumes for us as a whole. So, earlier half and the call, inside the question, let's know about the content of our biochemical business, which basically addresses your specialty and nutrition and and the and oil and gas to to simplify it. I returned the question with resilience, but people, I mean, uh-uh, animals are not doing more rounds of I I see this pack, let's say, a 1000000, but not, not, not growing in fact. So And on the other side, oil and gas is clearly impacting negatively the volumes.
So all in all, definitely, in Q1, it's not affecting the overall. So this is the most important thing I need to clarify
There's no inquiry at all.
Yes. Yes.
Oh, no. I'm just at this point, I don't, you know, a project, I'm I'm more or less, I've I've been frozen. So that you can make him. In fact, I'm in the kind of, on the quality of, at the moment, So we don't really see, you know, uh-uh a lot of excitement, like I said, we'll initiate a a large investment in refineries at this point. So So right now, again, no remedial change in trend compared to to what we saw in Q3.
Now regarding what's in Capitona, I would say you have 22, 2 phenomena, in fact, in the in the performance of working capital that we have. I would say one phenomena is kind of mechanical to be a very organic organ. Since, of course, like, the overhaul we are, let's say, at around 14, 15% working cap on sales. So is the sales decline quite solidly working So this is valid, I guess, for everyone, in this situation, in, in any industry. So it requires obviously a discipline internally to wash the credit limits of your customer to make sure, you know, you don't start piling up our views that and, and the following, we continue having a good discipline in downloading at the time where, you know, tracing a struggle, you may need to, a decreased level of attention in the ability to collect for for this is still, I think a a necessary visiting that you need to entertain in the company.
But this has to recognize that there is some mechanical effect that plays, in favor of positive movement, of course, in capital, the same for, let's say, devaluation of commercial pricing. Because in your context, while you have a degree of commercial oil prices, it's up to recognize the valuation of start is also decreasing. So, of course, a mechanical in favor, the working capital. At the same time, same as for the receivables. It requires a discipline, an internal discipline in the company because, I can tell you on the internally, the business let's say natural instinct, it would be to buy cheetah by the starter, to explain that, you know, then tomorrow they will enjoy this call.
Look on raw material for the Philippines. When you have a limited visibility on demand, I think it's a it's a very good discipline still to make sure you know, you have a very stringent decision mechanism processing the company to decide what type of stock is strategic or not strategic to buy, an asset, basically, that the price is cheap because everything is relative. And and I think, in in those two forms, Markema, I I think as a as a school discipline and, and, shows through the performance of working capital that this is discipline is is paying off. So, some of it is mechanical and then we can think that of course, if there is a significant recovery in, in the sales, then mechanical engineering have the consistent sale of the nominal value of a working capital. So for sure, if the business recovers and volumes, will go significantly there will be some consumption of working capital attached to that growth.
So I suppose not to price there, like for any, any company having positive working capital in their in their balance sheet. And it says similar answer in case of raw materials, you know, starting to, increase significantly up. So there as well, you you will we will we will see a mechanical effect regarding those those 2 phenomena. It doesn't prevent, of course, the company to maintain a strict regarding the monitoring of stock levels and the credit limits, the credit limits for our customers. So at this point in time, are my my my stocks too low?
So it's it's it's sometimes, you know, when I I discuss, targets with this message that they complain about the the target. So I suppose it's a matter of opinion. Do I think I'm missing sales because of my level of stock? I I don't think so. So Okay.
So I think the it is it is okay.
Thanks.
We have the last question. Okay. From Laurent St. From Exane BNP Paribas. Sir, please go ahead.
Thank you, Norman ladies. Actually, all my questions have been answered, but I just have one Q1 then. Please follow Georgina. On on the guidance, I don't remember, our team has ever not guiding on EBITDA on on margins at this stage, even in the deep dark days of 2008, 2009, 2014. At this stage of the year.
So I'm just wondering if there's anything we should be aware of in terms of volatility or lumpiness on some businesses. That mean that you have more confidence in guiding on a specific organic sales number than on a range on EBITDA EBITDA margin. I know it's tricky. Sorry.
So, actually, you have a better memory than I do since I've I've only trained the company, in 2018. So What what I can say is that, of course, that we monitor is, is a lot based on the volume and the flow business that occurs every day. So this is basically the main driver I would say for her, for the level of activity for for new deciding, you know, to, allocate your results and allocate, in fact, the the effort in terms of running the plants. So, so this is basically a short term, clearly, the main driver that we And now the translation of that into EBITDA for sure depends on the type of markets and how the mix is moving that way. I'm trying to give you a still, I think, valuable indication regarding the situation in the state, regarding advanced materials, regarding cutting, regarding intermediate, which I I perfectly know the the the the respective EBITDA contribution it's quite different from one platform to, to the to the other.
So, so, hopefully, this has been helpful. And the and the talk should still allow you to was, I think, a good appreciation for the type of performance we can generate this year. And I see for sure, around many clear giving our EBITDA guidance with the margin of of a maneuver, let's say, of a value stems or on breads or for millions of few holes. So we can all be there to know which one is more valuable but we think, the guidance we are we are giving today is valuable and and should allow you to have a good understanding of for how we see the performance of a for for you.
Of course. Thank you, and take care.
Okay. Thank you, Laurent. Thank you, Paula. And I wish you all actually a strong to face a healthy and and well. Across the next coming months.
It's been my pleasure to be with you today. And, hopefully, I will enjoy this experience more in the future. And looking forward to to see some of you live at some point. Again, thank you very much for your interest and, and, see you next. Bye bye.
Ladies and gentlemen, we conclude the conference call. Thank you all for your participation. You may now disconnect.