Ladies and gentlemen, welcome to the Akermes Q220 20 results conference call. I will now hand the call over to Mr. Thielly Nunez, Chairman and CEO. Sir, please go ahead.
Thank you very much. Good morning, everyone. Welcome to Arkema to 2020 Results Conference Call. So with me today are Marjorie Donschamps, our CFO and the whole Investor Relations team, To support this conference call, we have posted on our website a set of slides, which details on portal catalogs, Otherwise, we will answer your questions at the end of the call. Overall, given the challenge of the current economic environment, We delivered a solid set of results in Q2.
And really, I would like to thank all the group's employees for their stronger commitment and the quality of their work during this period. Our results and our cash generation clearly demonstrate a good level of resilience. My feeling is that we have resisted well related to our industry peer, but I will let you be the judge of that. This confirms the merits of our ongoing strategy to increase the share of specialties in our portfolio and become a pure specialty materials player by 2024. As we all know, the second quarter was marked by the exceptional context of the COVID-nineteen pandemic.
In these provinces, the health and safety of our employees continues to be our utmost priority and we have taken all the necessary steps to ensure the safe workplace environment. In April May, in particular, economic activity was severely impacted by the lockdown measures implemented in many countries, important for Arkema affecting our customers across various sectors of the economy. We confirm this 2 months should be the low point of the year, and we started to see some improvement in June driven by market segments linked to contraction. This especially benefited Bostik And I know some of you were expecting higher results for Adhesive in Q2, but you have to be aware that construction virtually stopped in April and May in countries with stricter down measures, for example, in France. This mechanically weigh a busy on our volumes and therefore EBITDA and by the way, in this environment, precious steel and tough wire knot.
So the decline in EBITDA is linked only to lower volumes. Now the great thing about solution related adhesives is that when the rebound materializes as they did in June in Europe and in the U. S, we immediately see the results in our earnings. So Bostik EBITDA in June was nearly flat year on year after the 2 very difficult months in April and May. In July, although we don't have the final numbers, we are tracking broadly in May, June, with construction on the same trend, and industrial markets still missed.
Overall, so for this year, really I'm convinced, so there is absolutely no worry there, additive, we proved to be one of the most resilient businesses in our portfolio, and I would say for the chemical industry in general. Beyond the numbers, this past month has been very busy for us as we prepare for the medium and long term. It is a paradox that this period has yielded many opportunities for innovation. In the areas of batteries, hydrogen, composite pressure, including for face mask. In all of those areas, Arkema has also with its cutting edge innovation.
In addition, the use of technology, which became a day to day tool when working from home or organizing ensure investor interactions has allowed us to actually accelerate certain projects and partnership with some customers. It is our conviction that some niche markets like 3d printing, for example, were gross during the COVID crisis will come back strongly and we be well positioned to serve and work with our customers when growth returns have, in a sense, a difficult period, actually reinforce the relationship we have with our customers. First of all, and it's very important. We finished the 7th quarter in a quite good shape. We have kept our financial flexibility intact.
Actually, we have reduced our debt significantly despite the difficulty of the environment And this is important as my sentiment is that in the next year or 2, there will be many opportunities for a company that Karkema in terms of both organic and external growth in specialty materials. I will now comment On the second quarter's performance, before letting Marie Jose go through the financials in more detail. Just the following key points. 1st, while the Q3 EBITDA reflects strong impact of lockdown measures on the economy across many important countries for the group. Our balanced geographic footprint diverse end market exposure and also product innovation at us with a little downturn.
Sales were down 15%, 15.6% to be exact and volumes around 12% in Q2 reflecting declines in the transportation, construction and industrial market, especially. In particular, the abrupt decline in construction strongly impacted, as I said before, our Additive business, specifically in April and May, before bouncing back in June, thanks to the lifting of those measures mechanically. Meanwhile, we continue to solid demand in a few end markets such as packaging, nutrition, in various niche applications such as medical and protective barriers and mats. In this context of lower volume, pricing remains firm in our adhesive solution and Advanced Materials Businesses on demonstrating the quality of our product portfolio and initiatives in 2019 to improve the product mix. Together, we support from lower raw material and measure this at our specialty material EBITDA margins stay above 15% which I would say is a good achievement in this context of double digit volume declines.
As announced during Q1 results in May, We have implemented significant cost cutting measures across the organization to mitigate the impact of these crisis and our reserves. We reacted quickly and whose efforts are already visible in our Q2 numbers. I could confirm that we are well on track to deliver our goal to achieve 1,000,000 cost savings in 2020 relative to 2019. This is also true for the 1,000,000 reduction in capital expenditure related to our original plan of 1,000,000. We're now actually preserving the pace of investment dedicated to our polyamide 11 plant in Singapore.
Cash generation was clearly a highlight of the quarter for Asthem We generated a record level of free cash flow for the 2nd quarter, even significantly better than last year, which was already quite high for the second quarter. It was also true for the first half, a stronger year on year as the decline the earnings was more than offset by tight comfort of working capital by the teams in the context of low activity levels and raw material decline. I would really like to once again thank our employees at Achimov for the Hollow delivering these results both in terms of working capital and fixed costs. This has not been easy, as you know, to achieve since our industry is mostly with continuous processes so they can really be proud of these results. Finally, while we continue to remain more focused in managing the short term, we are also making progress towards our long term goals and the implementation of 2024 strategy presented recently at the April Investor Day.
Having closed the acquisition of LEAP in Adeliv in January and by the way, LEAP is delivering, you know, it's a Danish company. And is really delivering, on expectation despite the COVID. So I've included this acquisition, I believe, we closed the divestment of our functional polyethylene business to Eschar and Jun. So in the middle of the COVID, we closed this divestment. I think it was a good milestone for group.
Let them come 2 weeks ago, we announced the acquisition, a small one, but important one, a fixed IT which will strengthen both the global offering of hot melt and disease solution. It means that we don't want to slow down the pace of the bolt on acquisition for, Bostikum, exactly the great example of this strategy in Adhesives is company is quite profitable. Of our significant synergy potential both from a technology and market spend part, product ranges are very complementary rate with 1 of, most of the accounts. But not least, as you now know, we appointed a balance support us in exploring the potential sale of our PMA business as underlying as a CMD. So we move forward, not only on the short term, but also on the long 3rd.
On the organic project side, we started at the end of the Q1, the capacity expansion of Ontario chemical property in Cartier, Malaysia. Was expected. And in spite of the pandemic, and we are very close to the authorities in Singapore, Singapore is a little bit complicated in terms of COVID. We started the first step of the construction of the bio based polymer 11 project in Singapore. Together with important partnership with us with Musriere, all these initiatives will certainly contribute to our ambition to become a pure specialty materials player by 2024.
So now I propose to turn over the call to our CFO, Marie Jose, who will detail the Q2 financial performance.
Thank you, Kelly, and hello to everyone. I will start with the Approach 2 sales bridge. As you can see, revenues are down 15.6% compared to last year at 1,000,000,000 The 12% drop in volume, which Terry already commented is obviously the main driver for this decline. The price effect was of close to minus 6% and is mainly linked to the lower propylene prices in the coating solutions segments and more largely to the tough market conditions in the intermediates. Prices in Additives and Advanced Materials were marginally down, demonstrating the resilience in the context of commercial over volumes.
In the quarter, we benefited from nearly 3% perimeter effect, thanks to the successful integration of Alma in Advanced Materials at Lambda, in Coating Solutions, Proxima and Lyft, in the other It also includes, of course, the disposal of the functional color insurance business on the month of June itself. The currency effect is a slightly negative 0.4 percent are mainly reflecting some weak Latin American currencies versus the euro, in the quarter. Quarter 2 EBITDA came out at EUR 286 1,000,000 down around 30% versus last year. The challenging market conditions in intermediates and the lower volumes in specialty materials are the two concepts that really weighted on our earnings But a few positive factors mitigate this, busy client. Firstly, the quick implementation of cost fixed cost savings, which we announced in May.
You should bear in mind that the cost savings are mainly transitory as we expect, them to return at, at the previous level, of, at the level of activity picks up. Secondly, we benefited of a lower raw materials and some product mix improvements in our specialty businesses. Thirdly, the solid results of Performance Additives helped by MRAS and the resilience of its end markets like Crap Nutrition also supported the performance. The EBITDA margin stands at 15%, for the group. So while in some cases saw a significant margin contraction year on year coating solutions and advanced materials shows good resilience.
Inputing solutions are upstream, downstream integration set as well. Given the severity of the crisis, our EBITDA margins at 13.5%, I think, held up really well. In Advanced Materials, our EBITDA margin was close to 20%, benefiting from a good product mix, lower raw materials and cost reductions, The EBITDA margin of Adhesive Solutions was, I think, extensively commented by Pierre. It stands at 11% in quarter 2. And as mentioned, it was temporarily impacted by the strong decline of construction in the months of April May, in particular, and we expect a recovery from Q3 following a better month of June.
Depreciation and amortization reached 142,000,000 units, which is slightly up year on year as a result of the startup of production units and the integration of acquisitions. Therefore, the recurring came as 1,000,000. Nonrecurring items were a positive million in the quarter. They basically include, a roughly a €240,000,000 gain from the sale of the functional polyolefin and around EUR 150,000,000 of various items, so an asset write downs, PPL authorization, restructuring, and acquisition charges. Financial expenses stand at 1,000,000, which is lower than last year, thanks mainly to 2 factors, First, the redemption of our EUR 480,000,000 bond in April, which carried a coupon of 385 dollars.
And that we refinanced actually last year with a EUR 500,000,000 bond at a coupon of 0.75%. The second effect is the lower interest rates in the U. S, which we benefit from actually in the portion of debt that we saw up with working to U. S. Dollars.
The tax rate at the end of the first half stands at around 22% of recurring EBIT. It should be a good proxy actually for the year. And consequently, the quarter 2 adjusted net income amounted to 1,000,000, which corresponds to close to 1,000,000 per share. Moving on to the cash flow and net debt. So as mentioned by Kenny, our positive free cash flow amounts to EUR 288,000,000, establishing a new record for Arkema in the second quarter.
The performance, this performance reflects the good work to tightly manage your working capital. The working capital ratio on an annualized sales basis stands at 16.5% versus 16% last year. The free cash flow figure also includes million tax saving related to the use of tax losses in France. Total capital expenditure was stable, quarter to quarter at 1,000,000 we reiterate that the total recurring and exceptional capital expenditure should amount to around 1,000,000,000 this year. Net debt reached 1,000,000,000 at the end of June, including 1,000,000,000 of hybrid bonds, This represents a decrease of nearly EUR 350,000,000 relative to net debt of close to $2,500,000,000 at end of March.
So coming mainly from the inflow to the sale of the functional polyurethins business, the strong free cash flow generation over the period, and integrating the payment of the dividends in May, which amounted to EUR 168,000,000. Also please remember that we temporarily carry a EUR 300,000,000 hybrid bones in duplicate. Since we took advantage of the favorable market conditions last January to issue 1,000,000 of hybrid bonds at the yearly coupon of 1.5 percent in advance of our initial 1,000,000 hybrid bond maturing next October up to 4.75 percent interest rate. So at the conclusion, our balance sheet remains extremely solid, as net debt including hybrid bonds represents 1.7 times the last 12 months EBITDA. We also remain comfortable with our liquidity level which stands at EUR 1,800,000,000 at the end of June.
And as you may have seen in the press release this morning, we also renewed our revolving credit facility for 1,000,000,000 with an initial term of 3 years and the possibility to extend further 2 years. I thank you for your attention. And I will now hand over to Kieran for the others.
Thank you, Majosette, for this analysis. So what can we say on the outlook? So first of all, based on the initial listing of, lockdown measures in some important countries for the group, we estimate that the demand should improve gradually in the second half of the year in the continuity of June, were remaining, obviously, below, as just level. The pace and strength of this recovery are still uncertain depending on the evolution of the health crisis. And we continue to vary greatly between end market and geographies.
And lastly, we will have to leave with the uncertainty around COVID for the foreseeable future, barring second wave, however, the improvement we saw in June should be confirmed over the coming months. We hope activity and construction will consolidate at June's level And we are seeing light at the end of the tunnel in the currency space with higher volumes as to strong customer intimacy and innovation, With regard to industrial market, activity, from our standpoint should improve gradually, but we'll be more uneven especially as we have further down the supply chain or the value chain. So we hope to see an improvement a bit later in the year. As a result, at this stage, we estimate that in the third quarter sale at constant scope and a fixed rate, will decline by around 10%, which would be a clear improvement compared to the roughly 20% exact in Q2 So in this context, we focus on what we can control. We'll continue to focus on this element, which are the at our end, in particular, of course, capital expenditure, working capital, not to maintain a strong level of liquidity, As we said earlier, we are quite confident to deliver this EUR 50,000,000 of fixed cost savings in 2020 relative to 2019.
By the way, In Q2, just on Q2, we'll wear, more than half of this, savings already. And also, we're on track to reduce FX by 100,000,000 related to our initial plans. We will always, preserve, completely our innovation efforts in specialty material. To meet our customer, numerous technology, call and sustainable development challenges. Thanks to those initiatives, following a robust much in Q2 given the external context, which led to an even stronger balance sheet.
We remain very confident that we will emerge stronger from this crisis and growing on our balance sheet exposure, diversified in market and preserved financial flexibility. So I thank you very much for your attention. And, together with Marie Jose, we are now ready to answer any of your questions. Thank
We have one first question from Mr. Martin Wodiger from Kepler Cheuvreux. Sir, go ahead.
Hello. Good morning. Just a few questions from my side. Mauricio, you said you had some windfall profit raw material prices eased more than selling prices. Can you quantify them?
The second question is on potential reimbursements from governments for short time work of furloughs. Can you also quantify them? And finally, can you provide us with
first question. So I'm looking at, Marie Jose and, to get it.
So is
it the impact of raw materials you're asking for?
Yeah. Actually, the the the delta between low raw material costs and lower selling prices. You had passed on low raw material costs, but obviously the raw material costs eased even more than your 6% price decline.
Okay. So, on the first, on the first question, it's part of the following question. So we don't quantify each of the elements. I would say that on the intermediate part, more or less, we could say that pricing and raw material are more or less in line. Even I would say that some pricing, if Fluorogas for example, but also in MMA have declined more than raw material because by nature of these businesses of intermediates, okay, they are more cyclical.
I want to see why we put them in this separately. And they, they are more subject to supply demand and demand is significantly lower in Q2. So pricing was affected beyond the raw material decline. With regard to, specialty Materials, I would say that we gained a return. We not quantified precisely, but we gained a return between pricing and raw material, because as you could see on specialty material and our pricing has been quite stable with confirm the special signature of these businesses, no, they are not in the supplydemand mode, but really in terms of application value, and we benefited from a raw material decline knowing that between the oil price and what we buy, there is a long chain.
So you have not a direct, combination and you need 6 months about, to get the impact down on the P and L. But we got a little bit of positive because of raw material, especially in Advanced Materials and in, in adhesives. With regard to the potential Reinvent slurred, so I will talk, mostly for, French time is clear in place. As we said, we have not we have decided not to use any app from the state, for what they call partial unemployment. This means that we have no or we don't expect anything.
This is really, Arkema, own cost structure. And it was clearly said even externally, because we consider that we have a solid balance sheet and there are there was, we prefer to leave that to other companies. Then with regard that question. Okay, PMMA. So as we mentioned, we don't want to comment more, but we said it already clearly.
We didn't wait so long after the Capital Market Day, but despite the COVID to initiate a exploring the potential sale of KMA and we have appointed the bank as we said, well, this is the note like everybody. But as I mentioned, I think at the recent conference, we are not going to comment every week or every month where we are in the process. I think the process of exploring this potential sales web launch, and we'll tell you when things are becoming found more concrete, but be a bit patient because we are underneath steel in the COVID period. And we even if we try to do it, in a rather speedy way, it takes more time to be the normal period.
Thank you, sir. Next question is from Mr. Matthew Yates from Bank of America. Sir, go ahead.
Hey, good morning, everyone. A couple of questions, please. The first one is on Adhesives. And forgive me, I'm not really sure how to eloquently ask this, but you had a very good start to the year with profit growth in in Q1. And then, obviously, things fell off a bit of a cliff in April and May, and you're talking about a nice improvement through June July, I I guess is consistent with what we've heard from the coating players as well.
So are you able to be a little bit more explicit in terms of absolute profit expectation for Q3 or at least directionally year on year, for the Atiza business. And then the the the second question, maybe comes back to this idea around raw materials. You're talking about group sales being down 10% in Q3. I wonder if you could just disaggregate that into volume versus price. Thank you.
Okay. With regard to Adhesives, so thank you for underlining the fact that based on the momentum that we have implemented in addition to several years, we started the year very strong And then we had this case coming mechanically. There was nothing to do. I would say, even more strongly, maybe it's a paradox on the construction business. This means that in the countries where we are, I will give you a few names.
You can, for example, France, South Europe, Philippine, India, there was nearly a stop for 2 months of, which we are April of May, I'll just say this. I mean, we, we, mostly, our construction and when we say construction, it's construction, and do it yourself, an consumer, 3 force construction and 1 force, do it yourself the whole being 60% of the quota came on. We are completely, as I call it, but history, and we have the complete stop, because we are selling through distributors and people who are not, were at home. So so, which means that in April and May, on construction, on certain countries, it was minus 90% of sales. So despite all that, we generated a decent profit in WOCE, but significantly below last year, purely mechanical.
But what has happened, and this is the beauty of that disease, the big difference with many chemical, business and your own expertise in chemicals, no, is that as soon as the lockdown was lifted mechanically, we came back. And Israel in the chemical industry, we are not talking about to wait 1 year or 2 years 3. I mean, just the month after in June, we are already not in sales, but in profitability close to the 2019 level in June. So what we plan for, even if I don't want to guide, because, but, what we have in mind for Q3 and certainly Q4. So for the 2nd part of the year, which means for our release to be quite close to the 2019 level at which level exactly two other types or one is two other types to be more precise.
But it shows you that despite, quite challenging the macro, which stays challenging, India does it with the momentum, with the nature of the, this business is where you have many levers to improve your position, including some on raw material, very quickly, you go back to a level are close to, to 'nineteen. So, absolutely, as I mentioned, no worry on that visit, even if I recognize that FRAMA, we are, maybe lower than, maybe some would have expected, but it's purely linked to people not being in the streets, short being, shutdown. So you know, if I take, 1, to finish on the identity story, we go to LEAP, this, small Danish flooring, and, construction, chemicals, company. They are, so in Denmark, to serve mostly the Nordic countries. In Nordic, the lockdown was very limited and, LEAP profitability was above, last year.
So you can see the beauty of this, added business in this kind of environment. With regards to raw material, I don't want to guide precisely on what would be the minus 10% between volume price, but clearly, pricing will be rather close to what we get in a, in a, I would say, in in the Q2. So by difference, you can assume what would be the organic volumes, I would say, Okay.
That's very helpful. Thank you, guys.
Thank you,
sir. Next question is from Mr. Eman Villnato from ODDO. Ted.
Hello. Good morning, Terry and Marie Jose.
Good morning. How are you?
Three questions for me. First, do you confirm that for this year, you we should not have the same usual negative seasonality in your results between H1 and H2. Just looking to you free, with a 10% organic sales decline, you should have a level of sales in absolute value similar or slightly up compared to the €1,900,000,000 in Q2. So it tends to be encouraging for the EBITDA in Q3 compared to Q2. So that's the first part of my questions.
Regarding illegal imports on fuel gases in Europe, do you expect any more negative impact in H2? Or, everything now is over. I mean, overall, during the last 12 months, how much EBITDA you lost from that situation on Fluorogases? And do you think it can reverse one day. And my last question is about your balance sheet, do you think you may have some goodwill at risk, in your balance sheet due to the COVID nineteen could lead to some non cash impairments following the deterioration in economic performance.
Thank you very much.
Okay. I will answer that question to Marie Jose, but you will see that it's quite very, very limited. With regard to the first one, I will not answer in detail, first of all, we remain on the order of cautionable. Sorry, about the environment as we said, but clearly, You know that traditional, we are 5545 in terms of split of EBITDA, which is your question between H1 and H2. And, our feeling is not this, split between the 2 will be more balanced than it was in the past, because of the nature of the profit of April and the payment.
So your point is right. I will not quantify because we accepted together, let's say, an estimate of what could be the sales evolution, but not of the EBITDA for the full year. So we prefer to, we prefer to let you make the math, but To your question, yes, we believe it could be more balanced. I don't see balance, but more balanced between H1 and industry. With regard to the flow of the flow of BSEs, And take also into account the scope effect.
Don't forget that we will use them. So it would mitigate your answer that we use, functional coordination on the second part of the year. And Ahmed was already there last year. So when you compare the performance of the 2 semesters, there are two events that he was not in H1, is that, pretty functional protein a disposal. And our math was already there last year.
But once we said that, in terms of line, as you could see, like for us, this is why we decided to give you minus 10% at constant scope. And fixed rate will compare minus 10% compared to the minus 20% of the Q2, which confirm that on the momentum of June, we see a net improvement, a quite significant improvement in the same development between the the 2 quarters. Hopefully, I answered your question. But with regard to Fluorogases, So, yes, in a good report, I would say it was a story last year, offensive end of May. So which means that, or it started, which means that in comparison, for us, the situation is not improving as such But in comparison with the date of last year, you had the negative impact up until end of May last year.
So what does it mean for Fluorogas? I would say then you are more in a normalized situation of most cyclical business in macro environment, which is tougher, which means that forest and plazocovid, which means that has 2 effects. 1, which is supplydemand, from airport in Asia, the results are quite challenging in, about Fluorogases and also in Europe, while it's more resilient in the U. S. And the second thing is that people, because of the a lockdown, which is lifting, but not fully lifted by far.
They are not, for example, in the U. S, they are not in the office. So they use far less air conditioning, that we are using, last year. So you have still, and you have plus the automotive. So you have still macro element, which are going in the wrong direction.
Including in the 2nd semester. But to answer specifically to your question on the legal import, is negative year on year base in Europe is a short family, de separating progressively Now, we to reverse, which is the last part of your question, it's too early to say clearly this year, we'll have doing no reverse. Maybe you will start to have reversed next year depending on the how effective of the pressure, which is put by the European Commission and the state to get rid of this to a completely crazy situation. So Our best case is that you have no reverse, I would say, to be cautious hopefully next year. You could have some, some start of reversal.
But, you know, I prefer to take this, issues step by step. But anyway, the big yeah.
How much you lost of the order? From that situation, on your EBITDA for for fuel oil gazis.
Oh, I don't want we don't recommend specifically the reserve, but as you have all an estimate of, fuel gases with all the elements we have given you over the past 3 years, frankly speaking, I'm sure you can have something which is very precise on that. So I really like on you to make your own map, but you will not be fast. But it was, it was smaller. The good thing is that we got it. It will show us the valid.
So now we have the best achieved pharmaceutical. At least, if I put the size that micro changes linked to the public. Now I will hand it over to management.
Balance sheet and impairment risk. So you saw in fact now we have, frankly, had a very limited impairments in the current environment compared to the overall impact we see around us. So you have in the financial accounts, actually, the sensitivity to EBITDA variance, as well as the sensitivity to a weighted average cost of capital. What I can say is that, compared to last year, the main change in assumption has been the change in work in Asia, which we had at 8.5% and we increased at 9% actually perform the impairment test, for the semester. And the sensitivity that flat in the account is a potentially over the acrylic seizure, cash generating unit.
Where we will, we will just monitor the evolution of the work. And then there is a solar residual group within there, as I said, the risk is limited as I see it right now. So you should not have anything major coming through take a hard.
I think they're good to confirm what Laranger Day is saying. We had a question in your past about our acquisition strategy. We are very proud of what we have achieved in terms of acquisition because they are have started to be quite, compared to the date that we bought a few years ago, even in the COVID situation, you take our much reserve in line with last year. So I mean, how many businesses you can there's a lot you can discuss already, but even this year, there will be a significant job of when we bought from, from Total, the lease is quality, pushing me on a piece of ring chromatography, but it's not already, and it's very small. So, Xevalta has been quite a busy year.
So frankly speaking, I think we have been very cautious in our acquisition strategy. We have made sure that we have strong synergies, the high quality businesses, they're diversified in terms of end market. And you see, you see that in this, what model do they see? I think, the few impairment we have are not even linked to acquisitions. There are some very small pieces and very specific because we did this analysis, the recurative and very, very small sum of things and nothing at all to our operation strategy
That's correct. Actually, when you look at the account of last year, you see the sensitivity test on EBITDA items was, made with minus 10% relatively on GDA. We actually extended the sensitivity test in the accounts of the semester with a minus 25% sensitivity to a variation of EBITDA, and this would lead to no additional impairments that's why I said I'm I'm I'm confident with the numbers we are we end up with end of June.
So the company is I said at the beginning from a more longitudinal standpoint, is really, exceeding the second quarter, really in good shape. With very strong balance sheet, concern about quality of the, let's say, evaluation of the assets. So it's quite a good position to be even if the, backward environment remains challenging. I think there will be opportunities for company like us. As I mentioned, just because of this strong balance sheet and because we can really rely on the acquisitions that we have been making in the recent years to take us at a higher level in the coming years.
So we feel comfortable on this part on the and it's a good message to tell you.
Thank you, sir. Next question is from Mr. Bobasher Sadoli from Citi.
Hi, Miraj. Hi, Terry. Just on the Fluorogases, I wanted to get your thoughts on this investment with Nutrien. The 50% of its, product is for, immersive HFC I just want to get your thoughts around investing in, effectively banned or going to be banned products. And how that sets your ESG metrics.
And then secondly, on shareholder returns and M and A opportunities, How are you thinking about capital allocation going forward? Understand if if a large strategic opportunity was come by, like, the sizes on Mars. Is that something that you would execute on or having announced potential buybacks, with those take precedence. Just wanted to get your thoughts on on, Capital allocation priorities. Thank you.
With regard to, I think it's a very good investment, for different reasons. The first one, you mentioned EOG. Thank you for that. You know, that the traditional, way of getting HS, which is the main raw material of, when you say Fluor, it's Fluorogas. But also fluoro polymers, all our specialty fluoro chemicals.
The traditional method is to start for the middle race, so from the mining end. And in terms of energy is quite consuming. The beauty of this investment, which is an investment in common with a very good company, which is Nutrien, is how to use the right product. And to transform it directly into HS. So it's, it's really the perfect process to get it changed.
The second thing is that we have never been consultable on the HCF, long term cost competitiveness starting from mining, especially in Europe and the, and the U. S, there has been a lot of tension And despite of this current COVID crisis, I believe that retention can stay for a while. Because of the environmental cost front, which are put on the mining. And, with this, will it be quite a competitive? So it will help to fold the first one is a polymer, the Fluoropolymer, which as you know, it's a fantastic product line of Arkema standing in a high performance, polymer product line.
And, we'll not only secure, but make sure that we are competitive long term. So this one, with some, side application of solid electronics on Amplify sheet, on which we can use this HSF. So we are very comfortable on this part. And then on top of that, you know, that we are exploring different options or emission Fluorogas, it's a positive to the extent that it will make them even more competitive. So we gain on many different elements.
And I think it's a very good investment. On a capital allocation, I think I will not replace what say very clearly as a capital market day, capital allocation, as you know, it's a long term, it's a long it's a very important, but long term, element of our strategy. So it was a very clear on the capital market day between what we want to spend in M and A, what we want to start in return to shareholder with this dividend policy, which is a growing one. And then with, as it's different with the past, what, more space for share buyback in opportunistic, opportunistic way. I would say that currently in the middle of COVID crisis, we have a strong balance sheet, but we are still level of debt, which is 1.7 times EBITDA.
So I don't think the topic and you can see it with all of the groups, listed groups, it's not so much share buyback. The topic is ready to continue to be very solid, very resilient, so to make sure that when the COVID is being us, we are in perfect shape to, to benefit of opportunities of the market. So this is what we are doing, but clearly, our capital allocation strategy is very clear defined as a Capital Market Day. And as for M and A, this is what we intend to do.
Thank you very much.
Thank you, sir. Next question is from Mr. Danish Chang from Redburn. Please go ahead.
Hey, Thierry, Marry Jose. Just two questions from my end. I might have missed at the beginning, but in terms of your communication on the gradual improvement in 2H, so with the visibility, you have And from your order book, could you put this into context for July's activity? It'd be really useful to infer what the run rate of July volumes are versus June. My second question is on the various moving parts in 2H.
So has Coronavirus or the demand outlook changed the sort of startup timeline for expansion in PA 12 and PVDF? Thanks.
Sorry. The the line is very bad. So I wish we should make Just in what we need, what they have understood of the question and Okay. Okay. And the last
is our debit driver insurance, the current contact on the timeline of the CapEx.
Okay. Thank you very much, Jose. Have a very good year. I am impressed, so this is the way we are achieved. So manager is making the question and making the answer.
Yes. Thanks.
Well, as I mentioned for us, so July is not in early finish, but we haven't done the final numbers yet. But I would schedule like it in continuity of, with late days because June was a long answer, we should not forget, but I would say like for us, July is in continued of June. So what is better? Is it better? What is still challenging?
In terms of end market, it's still challenging, the same for the countries, but we are in continuity of June and basically our guidance or guidance. Let's say our estimate of this minus 10% sale for the Q3 reflect this continuity with Jona. And this is why you have a significant improvement the minus 20 percent organic sales in, at constant scope and fixed rate between Q3 and Q2. This is because we, in fact, we plan a continuity with, with June. So we confirm that.
With regard to the schedule, if it is your question on the PVD development and polymer development, we, we maintain the timing. So we have, in fact, issue issue, move forward. You have at the end of the year. Let's say, it can be only next year, right? Not, in the current context.
It's not a matter of 1 month or 2 months. We have the PVDF. We have a batteries have been a little bit stable on the 1st semester, because of the crisis, but they will, show on the 2nd part of the year, start again their growth. And this PVDF investment was mostly for a battery. So it's still valid.
So would it be end of the year or next year? We see that it's very close to our original schedule. We have some investment on the P2F downstream polymer of compounding in China also for the Q3, which should be on time. With regard to the polymer 11, as I mentioned, we are trying to protect really the Singapore development So in fact, it's not because of the cutting CapEx that it will delay. It will be because of the COVID in Singapore, but I just said that the Singapore government has been very, very helpful for us.
And, we are so far in our planning, quite close to what we announced already around the mid-twenty 22. So, so we, we are, we are on target. It's a matter of a couple of months for each of the investment, we are on target. Does it answer your questions? Or
Yeah. It does. Thank you very much.
You're welcome.
Thank you, sir. Next question is from Mr. Jeff Hair from UBS. Sir, please go ahead.
Hello?
So we have a next question from Mr. Andreas Iner from MainFirst. Sir, please go ahead.
Yes, please. Only very small, questions left. Could you highlight a little bit more the regional trend in the progression from June to July? So said, also in continuing continuity, or do you see different trends by reaching out the first question? Then coming to your sales decline of, 10% in the third quarter.
So quite some operational leverage, which is usually the case if you have a very strong sales decline as it was in the second quarter. Is it fair to assume that this operational leverage is much less than in third quarter where the volume decline is, also much less? And this is the second question. And the third one is more one in on Fluorogases, coming back to these, illegal imports from China. My understanding is that that happens only at the very end of the life cycle of the product.
And then you have a change into to the next generation and the an an a a pickup of sales of of more innovative products, when, is that going to happen? So that really the next generation gifts and, let's say, push up in earnings again. Thanks.
Okay. With regards to the regional trend, yes, it's also continuity in regional transit, you have still Many question, which regard to region, which are linked to the lockdown and the development of the COVID. If you take, for example, the U S, we assume a continuity in Q3 versus June because when I discuss with my team, clearly, you don't see any significant improvement in the sanitary situation in the US, even you see some deterioration. What says that, it's maybe a paradox. US is not more heated from an economical standpoint than Europe, which means that the SINA situation in Europe seems to be more of a under control.
But at the end, in terms of economic impact, it's quite, it's quite comparable. With regard to Southeast Asia, which was one of our elements of concern, also there, the lockdown, textile are to be lifted. So we don't see any significant difference between June and Q3. So I would say, even from any China, it's back to, to normal levels. The only weakness in China is still coming from their export.
So, it's more, I would say, for me, it's more an end market dynamic, which is changing from April May to, to June and then to Q3 than the regional, dynamic which finally is, is more, which is more stable. With regard to the, your question on the sales decline in the third quarter, first of all, when we say, minus 10%. But it's obvious why everybody is at constant scope and fixed rate now, but I will not reiterate that. With regard to the fixed costs, clearly, in April and May, we have been quite aggressive on the cost base and because of the law said and our team have done a fantastic job, but which means that in Q3, since we assume in inorganic sales, half a decline compared to what we got in Q2 In terms of fixed costs, we do not gain as much in Q3. Then we gain in Q2, while we cannot have, certain level of recovery of sales and continuing to cut cost, as much.
If you take, for example, one example, which is Bostik, a bostik in April and mez, they are really cut costs like hell in a construction, marketing, etcetera. But in general, they started back to put cost again. So overall in the quarter, there was significantly below last year, I think, Q3, there will be a little bit below, but, not far from last year, but the results will be close to last year. So you see, it's, we try to be clever in the way we manage costs. So overall of the year, we can see on the minus 1,000,000, compared to net compared to last year.
But as I mentioned, the majority of it was already on 1, more than half was already on 1 single quarter, which was Q2, country will be below last year, but not with the same dimension as we had in Q2. Is that the clear and we bring up to Clovant. I will not spend too much time on the call on for all that while our strategy is ready to develop, as you know, specialty materials. So we have to be reasonable in our pickup time, but you are through to say that the more we go, but it will take more time than before we're expecting, next generation would be a key point. And certainly what they will update you on where we are, but we have kept 2 players on the new generation that, is equally still a factor in, in Europe, I believe what is still a factor because of the prices of the quota.
And we have been hit and, unfortunately, to come back at the question of Emmanuel is that next year, is that, some part of next year at a certain point, we should have some reverse of a natural river because of what you say that we move more to a new generation, but we should have some rivers of what we, what we lost, we should add pretty urgently. But for the time being, I would say on the second semester, the fuel oil gas, a topic is not HFO, is not, in a more history, simply the macro Aditi. So we are back in the world of Fluorogases, with the macro, which is, for any intermediates, working against this, their performance. But, I would like to, because we come to the end of the of the concern entry to, to, to re analyze the fact that, you can see the fact to split, specialty materials and intermediate was quite important because you can see the behavior of each of the platform compared to last year, but clearly we are more resilient in the shorty material, which is launching, but, had to be proven again. And, company is quite in good form from a balance sheet standpoint.
And again, there will be opportunities, not necessarily in the next month, but in the coming 18 months, just because of the opportunity, which could be given by this COVID period, if we were able to to emerge just from there. And I think it will be the case for Arkema, even if the COVID for the timing is not shared behind us. There are some cautiousness linked to this COVID. And then last question, maybe the last of the last And then we'll, if you agree, we will, like, cut the conference.
We have one last question from Laurent Favre from Exane.
Oh, thank you very much. That's squeezing me in. Good morning, all. Thierry, my question is regarding the, I guess, the dividend cut for 2019. And I think when you announced it, you talked about, I guess, giving back, I guess the that cuts in terms of consideration either through dividends or buybacks, as you've demonstrated flexibility or resilience in Q2, and you sound a bit more optimistic on Q3.
I'm just wondering if you have, early thoughts on, the timing and mechanism of how this payment could be? Thank you.
So it's a good question and we have not forgotten what we said, which means that this let's say, the difference on dividends will be returned back to the shareholders when, I would say the macroeconomic will come back to normal. Don't think we can consider today that it has come back to normal, even if we did a fantastic job in terms of cash flow, we had no, we had a space for balance sheet. So our shoulder will be, we have to be a little bit more patient, but in fact, we do exactly what we said when things come back to normal. Which is not yet the case. We all know that, we, we committed to, to return back this, decrease of a dividend compared to the initial dividends we proposed, which was great.
So we have seen that in mind. But give us a little bit of a time until the situation is, is becoming, normalized again, but it on our road map without any ambiguity. Okay. So thank you too for all your questions. I wish you a good summer.
And, if any further a question or hesitate us to contact the Beatrice and the team. I think we will certainly be ready to answer to you. Thank you very much.
Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.