Ladies and gentlemen, welcome to the Arkema's Q1 2020 results conference call. I will hand over to Thierry Le Hénaff, CEO, and Marie-José Donsion, CFO. Madam, sir, please go ahead.
Good morning, everyone. Welcome to Arkema's Q1 2020 results conference call. With me today are Marie-José Donsion, our CFO, and the whole investor relations team. The global situation has continued to evolve since we last took at our strategic update on April 7th. With enhanced prices are expected to further increasing in intensity in many countries, and now we are just beginning to show signs of stabilization. Meanwhile, the economic environment, as you know, has continued to deteriorate, with the second quarter currently expected to be the low point of the year, concentrating, as you know, most of the lockdown measures implemented by governments in many countries around the world.
First of all, I hope that you and your families are well, and before I start this conference call, I'd like to express my gratitude to everyone who is bringing his contribution one way or the other, in any part of the world, to the fight against this terrible virus. Primarily, of course, all the health workers who are at the forefront of this fight. Very quickly as many companies, Arkema showed in its own way its social commitment in this crisis through free delivery of gels to hospitals, supply of essential polymers to make protection equipment or medical devices, or financial donations. Our management and our teams can be proud of this. Beyond this expression of our solidarity, the health and safety of our employees is our utmost priority, and we have swiftly installed crisis cells to focus on employee safety.
In parallel, we are making sure our operations are running as smoothly as possible. Actually, most of our plants have been running since the beginning of the crisis. We implement quick and significant measures to mitigate the impact of this crisis on our results. To support this conference call, we have posted on our website a set of slides which detail our first quarter performance and outline some elements of the outlook. As always, we will answer your questions at the end of this call. I will now make a few comments on the first quarter achievements before letting Marie-José go through the financials in more detail. I would like to underline the following key points. First, Q1 results were in line with our expectations. They were impacted by the emergence of the pandemic in China first and in Europe in the second half of the quarter.
The picture varied significantly by end market and by region. Overall, we estimated the impact of the COVID-19 in Q1 at around EUR 100 million on our sales and EUR 45 million on our EBITDA. This is in line with the guidance of EUR 40 million-EUR 50 million we gave at our Strategy Update on April 2nd. Most of the EBITDA drop came from lost volumes and from a return of payments, around two-thirds of the total related to Asia and the rest to Europe. Volumes were down nearly 5%, a drop that more or less corresponds to the estimated impact of the COVID-19 on our top line. This reflects more particularly decline in the transportation, oil and gas, and electronics markets, which affected especially Advanced Materials and were amplified by the pandemic.
These overshadowed solid demand in the few end markets such as packaging, notably within additives or nutrition, and in certain emerging niche applications used for the fight against the virus such as disinfection, medical and protective barriers, and masks, in which Arkema was able to use its know-how. A simple way to analyze the evolution of the group's EBITDA in the quarter can be the following. We have three well-identified specific events. The COVID-19, with its negative impact estimated at EUR 45 million. The national strike in January in France linked to the new national pension scheme which affected transportation by rail and cost us nearly EUR 20 million. The impact of illegal imports in European fluorogases, which amount to around EUR 20 million, and which should prevail up until end of May. Excluding these elements, our EBITDA was stable with a different picture by segment.
The decline in the EBITDA of Specialty Materials essentially came from the impact of the COVID-19. This was a rather resilient performance if you keep in mind the underlying challenging economic context which was prevailing at the end of last year in the fluid market. The Distribution continued to perform very well, recording double-digit EBITDA growth, thanks notably to operational excellent measures, lower raw materials, and synergies from acquisitions. Beyond the COVID-19, EBITDAs from Intermediates were impacted as expected by illegal imports in European fluorogases and some further normalization in PMMA. We have put in place a number of strong measures in order to adapt to this crisis, to mitigate its effect on our volumes, and to focus first and foremost on cash generation. I will give two examples.
Reducing fixed cost in 2020 by EUR 50 million relative to 2019, or EUR 100 million relative to our budget, including decreases in all dimensions of the company operation, from manufacturing to G&A. Reducing capital expenditure by EUR 100 million relative to the initially budgeted level of EUR 700 million while preserving possible significant step up in investment dedicated to our polyamide 11 plant in Singapore. Finally, we must look beyond the current turmoil. Even if the short term requires all our attention and a considerable amount of effort, it is critical to continue to think and work for the longer term, whether this be the gradual rebound after the crisis or the implementation of our 2024 strategy presented at the recent Investor Event. During the quarter, despite the pandemic, we continued to make progress towards our midterm goals.
In January, we closed the acquisition of LIP, the Danish leader in tile adhesive, waterproofing system, and floor preparation solution, which delivered a good first quarter. At the end of the quarter, we started the capacity expansion of our bio chemicals plant in Kertih, Malaysia, to support the growth of the animal nutrition, refining, and petrochemical market in Asia, building on the rapid success of the first unit. We moved on with the site preparation of the bio-based polyamide 11 project in Singapore and ensuring that the CapEx cut we will implement this year does not affect this critical development for Arkema. Finally, Q2, we expect to close the divestment of our Functional Polyolefins business to SK, which we announced last year. This initiative will contribute to our ambition, which we presented at the Strategy Update on April 2nd, to become a pure player in Specialty Materials by 2024.
I will now turn over the call to Marie-José, who will detail the financial performance.
Thank you, Thierry. I will complement Thierry’s comments, starting with the bridge on turnover. Sales are down 5.7% compared with last year at EUR 2.5 billion. Beyond the negative volume impact of close to -5% that Thierry commented, the price effect has also had a negative 5% effect on sales compared to Q1 2019. This impact mainly comes from lower propylene prices in the Coating Solutions segment and the tough market conditions in refrigeration within the Intermediates. The price effect was slightly positive in Adhesives thanks to the measures taken last year to improve product mix, and was quite resilient in Advanced Materials with a limited -1.7% effect.
Please also note that we enjoy a positive 3.4% perimeter effect coming from the integration of ArrMaz, Lambson, and Prochimir acquired in the second half of last year, as well as from the acquisition of LIP within adhesives, and that was acquired in January this year. We have as well a 0.7% positive currency effect, mainly reflecting a stronger U.S. dollar versus the EUR. Basically, the rate for the first quarter of 2020 was at 110 compared to 114 for the first quarter of 2019. These effects on volume have led to a Q1 EBITDA of EUR 300 million, which is 19% lower than last year's level, including an approximately EUR 45 million negative impact due to COVID-19, as detailed by Thierry on the various segments.
Depreciation and amortization reached EUR 114 million, up EUR 17 million year-over-year as a result of the startup of several production units and the integration of acquisitions. Our core recurring earnings amounted to EUR 160 million and release margins stood at 7.7%. Non-recurring items include a EUR 14 million PPA amortization and a EUR 14 million non-recurring charges, mainly relating to restructuring expenses, asset write-offs, and acquisition costs. Financial results stand at a EUR -23 million, which is slightly lower than last year. The difference coming mainly from non-cash actuarial changes in certain employee benefit plans. The tax rate, including exceptional items, remains stable at 21% of recurring income. Consequently, our Q1 adjusted net income amounted to EUR 100 million, which corresponds to EUR 1.31 per share.
Moving on to cash flow and net debt. Q1 free cash flow amounts to a EUR -38 million, to be compared to the EUR 73 million in Q1 2019, and to a EUR -25 million in Q1 2018. Free cash flow reflects the impact of a lower EBITDA and includes our regular seasonal increase in working capital linked sales phasing of Q1 versus Q4. The working capital ratio on annualized sales stands at 16.5% versus 15.1% last year. As highlighted by Thierry, a tighter monitoring has been put in place to track inventory evolution and cash collections. Total capital expenditure amounted to EUR 92 million in the quarter versus the EUR 109 million in the first quarter of 2019. As Thierry mentioned, we intend to reduce capital expenditure by EUR 100 million compared to our initial target of EUR 700 million.
As a result, we should end up with a total recurring and exceptional CapEx expenditure at around EUR 600 million this year. Net debt reached EUR 2.48 billion at end of March 2020, including the EUR 1 billion of hybrid bonds. This represents a slight increase of EUR 150 million relative to our net debt of last December, coming mainly from the M&A done in January for EUR 95 million and from the operating cash flow of the period. As a reminder, please note that we temporarily carry a EUR 300 million hybrid bond in duplicates since we took advantage of favorable market conditions in January to issue a EUR 300 million of syndicated hybrid bonds at a yearly coupon of 1.5% in advance of our initial EUR 300 million hybrid bond maturing in October this year, which has an interest rate of 4.75%. Our balance sheet remains extremely solid.
Our net debt, including hybrid bonds, represents 1.8x our last 12-month EBITDA. We are also very comfortable with our liquidity level, which stands at EUR 1.5 billion at the end of March. Moreover, our pension obligations stand at around EUR 400 million, which is a very manageable level in the current volatile capital market. I thank you for your attention, and we now hand it over to Thierry for the outlook.
Thank you, Marie-José. As I mentioned at the beginning, the COVID-19 continues to spread across the world, and how the sanitary situation evolves, as well as its precise impact on the world economy, are still quite uncertain at this stage. Like most of our peers, we decided months ago that the 2020 guidance we gave when we published the 2019 results was no longer relevant. Our feeling is that in terms of year-on-year demand variation, Q2 will be most strongly impacted. One element being the drop in building and construction-related segments in Europe and in the U.S., therefore affecting the Adhesive Solutions and Coating Solutions segment. Our sales evolution for the month of April is estimated to be around -17% year-on-year, including the perimeter effect of around +3%, like in Q1, which means at constant scope in April, our sales evolution of around -20% year-on-year.
A gradual improvement should materialize from our sales point from June, provided that the lockdown measures are lifted in Europe and the U.S. as currently expected. We also believe we should be in a position to have a clearer view of the prospect for the full year in the summer. I stated at the Investor Event early April, we are very confident to go through this crisis and emerge in good shape. We are benefiting from a diversified base of end markets and countries, some ongoing developments in each application, key in the fight against the virus and other innovations, a strong balance sheet, including a relatively low level of pension obligations, and a strong liquidity position. Our adaptation measures on costs and CapEx and some benefit from lower raw material will help mitigating the drop in demand.
As you can see, we focus on what we can control and are implementing a very strict and reactive steering of our activities and operations. As you know, Arkema are long been action-oriented, and our teams have stepped up their level of determination and initiatives quite well. Beyond our focus on cost, cash, and liquidity, we are fully attentive not to weaken in any way our ability to rebound once a recovery materializes. Our focus on sustainable innovation, corporate social responsibility, and portfolio evolution is unchanged, and we remain fully committed on not slowing down the execution of the 2024 roadmap towards becoming a Pure Player in Specialty Materials. I thank you very much for your attention, and we are now, together with Marie-José, ready to answer your questions. Thank you.
Thank you. If you wish to ask a question, press one on your telephone keypad. Zero and one on your telephone keypad. We have a first question from Martin Rödiger from Kepler Cheuvreux. Please go ahead.
Yes. Thanks, and good morning, Marie-José, Thierry Le Hénaff, and to the whole Arkema. I have three questions, if I may. First, can you talk about the sequential development so far? How April compares to March, and what is your order book value for May? Secondly, you say that you want to reduce fixed cost by EUR 50 million. Can you elaborate on the actions you are planning? You mentioned SG&A, but can you help me to understand if these actions are more temporary only or also sustainable? Thirdly, on your cut in CapEx budget, is that a postponement of maintenance CapEx, and if so, does it mean that CapEx is shifted into next year or anything else related to that? Thanks.
Okay, Martin. First of all, hello. Thank you for your question. I will start by the last one and come back to the second and first one after. They are really interesting questions. On the CapEx budget. First of all, it's not one CapEx specifically, all across the board. We are not considering any investment we wanted to make because we believe they were all important, even if we are ongoingly reviewing our most important CapEx. It's more about a delay, which means that, first of all, physically, it will take more time because of the confinement measures. This means that things we simply cannot do because you don't have subcontractors. Okay. You will have natural delay. On top of that, we are deciding to delay some CapEx on which, based on the sales prospect, we can wait a little bit.
We are also using this period to negotiate, to renegotiate certain CapEx envelope, which means that we obtain, because your price has decreased, because the economy is down, we are able to take unit prices down. With that, we are able to reduce CapEx. It's not also just to put it on next year, because at the end, next year will not be above what we thought three months ago next year will be. It's just a natural delay that we keep to a certain extent for many players, and we certainly don't take any risk, as you know, on maintenance and safety. We never do that. I think it's reasonable CapEx. It's all across the board. It's mostly delay and renegotiation, I think this corresponds to 15% or more. I think it's reasonable in the current context.
With regard to the fixed cost, again, it's all across the board. It goes from SG&A, it includes also manufacturing, R&D. Everybody is contributing. As I mentioned, we try certainly not to jeopardize any ability to rebound. Again, we try to reach a balance, to be reasonable, to be strong in what we want to achieve, but also to be reasonable. Examples you want, they are everywhere. I would say starting from renegotiation of any purchases to certainly travel is absolutely obvious. In operations, with some sales going down, to adapt the momentum of certain sites, et cetera. It's everywhere to cut some marketing costs because we don't need them as the customer don't order at the most peak. It's really all across the board.
With regard to the outlook, I think it was your question on the first point and how we see May and June after April. I would say I would consider that May is more or less like April. There are a lot of uncertainties still for you, for everybody. Our feeling is that after what I told you on April, we wanted to share this number with you, and we should be pretty more or less the same kind of evolution, and we should start to see some gradual, I say really gradual improvement starting in June. Is this lifting of lockdown alternatively the way everybody is expecting in the different countries around the world?
Thanks.
Thank you. Next question from Alex Stewart from Barclays. Please go ahead.
Hello. Yes, hello. Sorry, I'm here. Thank you for taking the call. I have three hopefully very quick questions. On this cost savings, you talk normally about being able to offset 50%-100% of normal fixed cost inflation through specific measures. Can you just confirm whether your expectation for 2020 is that you will now be able to offset all of the normal fixed cost inflation given that you've announced another EUR 50 million program? I'm interested in understanding the net effect of that fixed cost inflation. Secondly, in adhesives, you talked about a better product mix, which is accretive to the price components. Can you talk about whether your customers are asking for like-for-like price increases with the lower oil price? In other words, the same ton of adhesive this year compared to last year would be very helpful. Your comment finally on MMA.
You talked about I think normalization continuing. Can you confirm whether spreads that you're seeing are still higher than this time last year, which is what you saw in the fourth quarter of last year, whether they've now started to track below the same level last year? That would be very helpful. Thanks.
First one discussed in nature. With regard to the cost savings, to give you the full picture, every year we are able to save about between one half and two-thirds of the inflation of fixed cost by fixed cost and variable cost. What you don't have in what we have said is a variable cost component, which is every year, and that will be this year, which means that when we build what we call the budget for 2020, compared to the base of 2019, we have an increase of EUR 60 million of fixed cost. This increase of fixed cost was net of the savings, as I mentioned, in fixed cost and in variable cost.
What we'll be achieving in 2020, and we are quite confident because, in fact, to complete the answer to Martin, we have already collected the action of everybody on the initiative, and we are exactly where we thought we would be. We are very confident, and this is one of the strength of Arkema to be able to react quickly. From this budget, if we plan that with a better market environment, which was +EUR 50, we go to -EUR 50. Okay, all in all, compared to the budget 2020, we will save EUR 100 compared to the 2019 reference point, we save EUR 50. Which means that to answer your question, yes, we will deliver the variable cost savings. We deliver the fixed cost savings.
On top of that, we'll adjust compared to the budget with a lack of sales, clearly, and on top of that, we will save EUR 50 million compared to the 2019 level. It's quite a significant saving because you add in fact all the savings together. The one which you add to offset inflation, you have to save to try to adapt as much as you can to offset, and on top of that, you make savings. There was a question which maybe also Martin asking, was it long lasting or just one shot? Clearly, we should not dream, and it's true for every chemical company or every company. A significant part of what we will save this year in this specific context is not the kind of things you can maintain for the long term.
If I take travels, for example, obviously, we are not going to stop traveling when the rebound is coming and when the confinement will disappear. What would be interesting, but it's not a topic for today, but we start to think about it, is how we think about the longer term. How can we, through other measures, replace what is really short term by something which is more long-lasting? That is not a topic for today, but it is by definition something we need to have in mind. What is interesting today is the way we work with people at home, you see that it can certainly make things more simple or more efficient. There are ideas which are emerging that we try to collect but for the longer term.
With regard to the adhesives, clearly yes, there is a little bit of pressure on pricing, but adhesives is some niches, but we are working a lot on the product mix. Our product mix is really changing a lot on volume. When you talk about the raw materials, as you know, between when your price is decreasing and when you get the benefit in your account, you have six months. All the elements mean that there is a little bit of pressure on pricing, but which is reasonable because you are on Specialty Materials, and I think we managed that rather well in the Adhesive Solutions. The main element, as I mentioned, is really the evolution of our mix on the higher-priced product and higher-margin products organically, but also in terms of the acquisition.
On the MMA, I don't know if I understood well your point, but the spread is not improving. We have some further normalization, which is reasonable. We feel that with the current context where the automotive is down, you have some unit price pressure, we get it. We have also some raw material benefit which attenuate this. Overall, the spread of MMA, PMMA, as mentioned, I think both in the press release but in the call, has continued to normalize, but in a reasonable way.
Thank you.
You're welcome.
Thank you. Next question from Emmanuel Matot from ODDO BHF.
Hello, Thierry. Hope you are right. Three questions from me, please. First, why are you saying in your press release this morning that the negative impact from illegal imports in fluorogases in Europe will stop in June? Is it just due to the basis of comparison, or do you expect that business to recover?
It is also the basis of comparison. This means that we had the impact last year starting around June, which means that at end of May, we should have a rate of comparison which is comparable. Okay.
Okay. There is nothing else related to the authorities being able to stop those imports?
All the authorities, they are in confinement, so they are at home. It's more difficult. I think that we are still quite determined to get the law to be applied, which should be the normal world. I don't think that this is a main topic of the current quarter with all this confinement and sanitary measures. I would not bet on that. What we bet on is that the rate of comparison will be similar.
Okay. Second, you talk a little bit-
Even, sorry. Even in normal world, I put the COVID-19 aside, you remember we said that we should expect an improvement at the end of this year. We have never said in the course of this year.
Of course.
On the recovery cost, yeah.
Okay. Thank you. You talk a little bit about raw materials for additives, but at group level, several raw materials were down a lot since the beginning of the year. If they do remain unchanged until year-end, could there be a significant support for your EBITDA margin this year? If yes, could you quantify it?
Well, I cannot quantify this point just because the situation is still very volatile. That is the main impact of the year will be volumes, not raw material benefit. All these elements, costs, and raw material are there to mitigate. That's partially mitigate. The main impact of this year will be about volume. You have some positive elements. Fortunately, we go with the volume, which will be, in particular, our cost and raw material. After that, with regard to raw material, we have a very strong drop of the oil price one month ago, say a few weeks ago. You have the food chain from oil to refinery, petrochemicals, or intermediate chemical, basic chemical, intermediate chemical, and then for our downstream business, this is what we buy, intermediate chemicals. You have a food chain, and then you have stock.
Basically, the chemical industry for specialty chemical like us, what you anticipate is when assuming the oil price, they're more stable, which actually is confirmed. You have six months between when it comes and when it arrives to us. There will be some benefit, but not in the short-term. You have some luck, but it will be an element which will help to mitigate as cost and which is normal. It goes together with the volume drop.
Okay. My last question, why have you not been able to get your working capital in line with your annualized sales in Q1? Do you think this ratio should improve in the coming quarters?
First of all, a very fair question, which were fair on the cash flow. Last year, as you remember, was a bit atypical for Arkema with a positive cash flow in the first quarter. We are in the Q1, rather comparable to the Q1 2018, which was considered to be a good performance with a limited negative outflow. Clearly, what has happened And we have to be modest on that, on the sales is actually, you had starting mostly in February, the sudden and brutal spend drop. Okay. After that, you need to adapt all your plants everywhere in the world, the one which are affected. You are on a continuous process. You need to adjust your raw material, and it takes a little bit of time. Businesses just adapt overnight to a drop in sales.
This is an explanation, but if I remember what has been Arkema in each period of sudden sales drop, we have been able to adapt quite rapidly compared to the rest of the industry. I'm not worried about that. It's an element of attention, and thank you for mentioning it. I think it's normal when we just arrive, we have a few months to adapt. It's an element of attention. We will follow it, but we are really working on it. Don't forget, most of our plants are continuous process. We cannot just adapt overnight.
That's very clear. Thank you very much, Thierry.
You're welcome.
Thank you. Next question from Mubasher Chaudhry from Citi. Go ahead.
Hi, thank you for taking my questions. This is Mubasher Chaudhry . Hi, Thierry. Hi, Marie-José. Just on the working capital, are you seeing any signs of your customers having any financial difficulties in meeting their commitments? I guess to put it another way, are your bad debt provisions in line with your thinking historically, or are you seeing them move upwards? The second question is on chemicals. You provided some color around the utilizations, in that provision. Are the plants still running in line with utilizations seen at these levels last year? Or are they running at lower utilization? Finally on Bostik. The raw material savings was expected to come through in 2020. Now as the current oil prices persist, could you provide some color around how long before these get baked in, and what the potential margin expansion could be, please?
Thank you very much.
Sorry for me. On the last point, could you repeat?
Margin expansion.
Margin expansion. Okay. On the first one, it's as talked, is an element of attention for everybody. Far, I think, we have a little bit of a stretch, but which is quite limited, Marie-José, on receivables. It's an element of attention because, in this world, which is quite challenging, some customers may have some difficulty. We put a lot of follow-up on it, and we are very strict on payment. So far, we manage it. The situation at the end of the first quarter is that it needs a lot of energy and attention. Maybe, Marie-José, you want to complete on that?
As you know, Mubasher, we have a Coface insurance contract actually on receivables, with actually a very strong performance year-over-year, which supports basically the low premium we pay for this contract. We obviously monitor with Coface the credit limits that evolve and are updated on a regular basis by the agency. It's a very close attention that we are paying to this metric. At this point, no increase in bad debt variances across the company. We definitely see a tendency from customers to ask for longer payment terms. This is something, Thierry, that requires vigilance at a high level in the organization. At this point, Thierry, this topic is in line, let's say, with the historical monitoring that we have on the bad debt balances.
Thank you, Marie-José. On chemicals, so far, I think these are the few product lines for which the demand is behaving rather well. You have the part of nutrition. As you can imagine, the world of today is one of the few markets which is resilient. Even the oil and gas in January was rather okay, but now we expect to have some weakness. Overall for the chemicals, we see rather good resilience. I would not say we are at the level of last year, but it's good resilience. With regard to Bostik, you have to think structurally or short term. Short term, they will be impacted, I mean, the Q2, by the construction, which is half of their business in the U.S. and Europe because of the constraint that is mechanical or is merely physical.
The construction, for example, in France, has nearly stopped for a couple of months, so they will be impacted by that. I think your question was more if we look ahead beyond this specific quarter. First of all, Bostik, by all the actions we have presented at the Investor Day, structurally, we continue to improve this margin. We don't change our mind. Coming back to the question of Emmanuel on Alex raw material and your question, yes, in the course of the second semester, we should see some benefit from raw material. Yes, easier price pay where it is today.
Great. Thank you. Just a quick follow-up. How much of Bostik is purely DIY?
I would say, we speak into industrial and construction, including do-it-yourself. It's 50-50. Okay. Of this, do-it-yourself is really a minority part of what we call CNC, which is really the construction and the Distribution part. It's around 10% of the total sales of Bostik. In the second quarter, when we say construction, this is a whole construction and do-it-yourself, which will be impacted by the lack of people, our customer, one being on the works and with the shops which are closed down. It's really nothing to see with Bostik. It's just the world which is like that in April. It started mid-March, then April and May, I would say. Okay?
Thank you very much.
Thank you. Next question from Laurent Favre from Exane BNP Paribas. Go ahead.
Yes. Good morning. Glad that you started.
Good morning, Laurent.
I've got two questions. The first one, actually it's a double one on operating leverage. First of all, on timing of savings, either on the EUR 100 million gross savings/ on the EUR 50 million net. I was wondering if you could talk about how much you crystallize in Q1, bearing in mind what you just said on the fact that you cannot change a company overnight. The second question on leverage is, given that we have a new divisional structure, we can't really look back at history to try to have an operational leverage. I was wondering if you could talk a little bit about the areas where you would think Q1 op leverage was higher than what you would hope, where maybe it was bang in line.
In particular, some comments on Advanced Materials would be helpful given that the EBITDA drop was even on the same drop, which may be surprising. That's the first question on op leverage. The second question, specifically on PMMA, we are hearing a lot of anecdotes on country between demands on work from home, but also protective measures in retail environments, which is helping PMMA demand. Against that, obviously, that is also in autos. I was wondering if you could tell us how you think about those diverging factors for demand for PMMA. Is it just a small story, or should we actually assume PMMA demand to be resilient?
Okay. With regard to the fiscal decrease, I would say it's limited in Q1. It's quite limited, maybe EUR a few millions, but this is the order of magnitude. We split the rest over the last three quarters for most of it, okay? I talk about EUR 50 because now you have to reserve compared to 2019. This is the simpler way. I wanted to explain the mechanism. We add through to minus EUR 50. The minus EUR 60, I would say EUR a few million in Q1, then the rest being split. Maybe it's a paradox. If we re-amplify in the second semester also, you should have a weighted average of the three quarters, which is more on the last two quarters. You will have some already in the Q3. Okay.
With regards to Advanced Materials, your question, I would say for me, but I look at Marie-José, there is a good correlation between the sales and EBITDA. Mm-hmm?
I would say the mix for Arkema as well is going to be on the quarter.
Yeah, we have some in automotive also, we have some good margin business which has been impacted. Maybe in terms of product mix, it may be different there because we have lost some high margin application. It's temporary, linked to the confinement. It's a difficulty with the COVID-19 because it's a little bit different from month to month and quarter to quarter. The product mix can change very quickly because it depends really on what is happening in every country, and which is changing every month. Maybe we check that in this quarter, we are maybe more impacted on higher on margin products. That's what we have, but it's not long-lasting. The margin, we are losing four points of margin, which is certainly quite, but we are still close to 19%.
With regard to PMMA, it's good to participate as a commitment of progress for workers or to participate to the protections for this sheet. Clearly our sheet plant, we don't have so many, but they are full in France and in the U.S. Unfortunately, we see a little growth back compared to what we sell in resins. It's a much smaller business, it's a good business to have. It's quite developing. There is a lot of expectation from our customers. We have been able to react very quickly. At the end of the day, in terms of impact on the profitability, it's nice to have, but it's far from being sufficient to offset the automotive growth.
Thank you, Thierry. [audio distortion]
Okay, thank you.
Thank you. Next question from Daniel Chung from Redburn. Please go ahead.
Morning, everyone. Two from me. Concerns of the various sources out there suggesting a recovery in China. It'd be great if you could provide the sort of color on what you see on the ground side, price-specific end markets. It might be too early to ask, but how much do you think that is structural versus a temporary phenomenon from restocking? My second one is asset strategy, if that's okay. Do you envisage any further non-core assets from the portfolio pruning or divesting beyond what was mentioned at the strategic update on PMMA a couple of quarters? I remember that there was a target of divesting EUR 700 million of sales. Before this, there was always a headroom there, so if you could share your views on that point.
On the first one, on the recovery in China, I would say China sequentially is better. Between February and March, I saw that what is happening in China is that China is depending a lot on export to Europe and U.S., even more to U.S., and this part has slowed down. In fact, what is happening in China with some plus and minus three, China is not rebounding anymore, really. We are still like in March. We are still a level of sales, which is more or less -10% compared to what it was last year at the same period, which are notable differences depending on which product line and market we are talking about. It's more or less -10%, which means that China is not coming back yet to where it was the previous year.
The main reason or one of the reasons being the fact that China is depending on exports. These exports are impacted by these lockdown measures in the U.S. and in Europe.
Southeast Asia.
Southeast Asia.
Southeast Asia, yeah. Yeah, Daniel is right. We have to mention Southeast Asia. Yes. Sometimes people don't have in mind that in Asia, you have really two Asia. You have China, which is not at the same level as last year, which have recovered for a big part of it. You have Southeast Asia, which is nearly fully locked down. It's one of the elements also of impact in the Q2 on Arkema, because we have a strong position there, which are a lot of times very good. We suffer from it for a few months. With regard to the I will not come back to the CMD today. I think this is the purpose. The CMD was very clear on what we want to dispose and I don't see what you mean, like add-on core asset.
I think we have enough on our plate and the strategy was very clear. We know exactly what we want to dispose of, and we are working on it in order not to lose time when the market condition will come back to normal.
Great. Thank you.
Thank you. Next question from Geoff Haire from UBS. Go ahead.
Good morning. This is Geoff Haire from UBS. I just have two very quick questions to ask. I was wondering, could you split out the uplift in margins you saw in the back end of Adhesive Solutions? Could you split out the contribution from raw materials and mix, please? Secondly, I didn't hear the answer properly to the first question on the phasing of CapEx beyond this year. You've taken EUR 100 million out of this year. Are we to add that in over the next couple of years back in to the projections that we had for the probably around Q4 times the EUR 700 million for next year? Thanks.
Okay. On the last one, Geoff. In fact, we are talking about 15%. 15%, it means one month and a half. Basically, the answer could be we delay by one month and a half in average all our CapEx. This is the way we look at it. It will not be added to next year. This one from five months, which is for this year a lot. If you look at it on the long period, let's say 2020-2024, it's nothing. This will not be cut out. This means that it will not be added up next year or the year after, which means that we are the work. It's not a year, the work I think is delayed by one month and a half, which is what we applied to our project.
It's more a delay that you will not get this added up next year or the following year. It's a delay which is now structured. Is that clear on this part?
Yes. Thank you.
On raw material from the first quarter on the price, because we do compression versus raw material, we cannot say we get any material benefit. A little bit in a business, but it's a continuity of what we got in the first quarter. The same event material is more an element of continuity, but based on what you, I think you refer to, which is this big drop in oil price, which is what I tried to explain before. Just to be a bit more patient, because of the time it takes to go from the oil price to the raw material, sold by intermediate chemicals, and then to our stock in our P&L. Normally, you have a delay which is not so far from six months.
Just to confirm, the 130 basis point increase in EBITDA margin and Adhesive Solutions, that was all a combination of cost reduction and mix?
There was a little bit of raw material which you caught, but it was mostly mix and cost reduction.
Okay. Thank you.
The raw material benefit we got because it was firm, it was more the combination of pricing and raw material is a continuity of what we did last year, in fact. Okay? If you look at the margin development over the second semester, in fact, the continuity of the first quarter. Okay?
Thank you.
Thank you. Next question from Matthew Yates from Bank of America. Go ahead.
Hey, good morning, everyone. A couple of follow-ups from some questions that were asked earlier in the call. The first one's around biochemicals. I just wondered if you could be a little bit more granular about the different applications for that product, a sense of how much is nutrition versus the fuel desulfurization and the polymer agents, and how those latter businesses are doing in this sort of environment. The second question is on the strategy execution. I think earlier you said you are working on it. I'm just wondering if you can elaborate what exactly that means. Does that involve legal separation, or actively talking to potential parties? Thank you.
With regard to Thank you, Matthew, for your question, as you know. With regard to technical, it is about 50/50 between nutrition and what is refinery and petrochemical and other oil and gas linked application. Clearly, nutrition is behaving well for reasons you all know. I would say oil and gas has been, when you say oil and gas, it's not oil, it's more refinery, petrochemical, gas. It's a gas odorant, so it's a very resilient application. We have plenty of niches also, including in nutrition, which are not the typical methionine type of application. Overall, it has been quite resilient in the first quarter. There is a little bit of more weakness there, obviously, but compared to what we see on other kind of market is still okay. The big driver for the time being is really nutrition.
Overall, technical, if we look at order for the client, it has a good level of resilience. With regard the strategy execution, we have to be a bit patient because last time we talked was at the Capital Markets, it was one month ago. As I mentioned, 90% of our energy is really focusing on managing the second quarter, managing the COVID, and it really a level of complexity which, as you can imagine, for a company like us, which is global with so many sites, so many product lines, it takes really time. Overall, what we say, the first message is that we don't want to break any momentum at all, which means that we explore possibilities. Our teams are working on it, but to have contacts just today. Contacts we have permanently, but even before the Capital Markets they don't be worried about that.
After that, us or counterpart or whoever, they are really focused on managing their company in the COVID. It's not the month where things will accelerate. My message is that, one, there is no discontinuity, but contacts are intact. We are working on exploring potential possibilities. Again, the Capital Markets was just a month ago.
If I can just ask one more, just around the high-performance polymers. You've mentioned repeatedly on this call, auto exposure, which is totally understandable. Are there any other significant end markets or products we should think about as being important for bringing the second half recovery in volumes in the polymer business?
To complete your point on the current situation you have auto, but you have the rest of transportation. We don't mention it too often, but it's a fact, what is bus and truck is suffering nearly as auto. You have electronics, you have oil and gas. I would say there are the three which are suffering more. With regard to the second part of the year, which is not at all Q2, and we are clear Q2 will be certainly the low point. We look more after gradual, very gradual recovery in the second part of the year. Clearly, things which are linked to battery will certainly I would not be so pessimistic on the electronics, because it's very linked to consumer. It's right, well, that's today. I think things could normalize quicker than other market. There is all this application with regard to the COVID.
For example, I was mentioning for the mask, but also medical. There are plenty of possibility which are one by one just incremental, but when you put them together, it will be part also of some improvement. Packaging also will continue to be strong all along the years. We have application in adhesive, but also in Advanced Materials. It will be a sum. It will be not one market. Construction will be better also because they will suffer a lot in the second quarter, clearly. There will be some catch-up, I don't know at which level. This element is still very qualitative, sorry for that, and there is a lot of speculation because there is still a lot of uncertainty. If you think about it could be there.
Thanks very much, and best of luck, everyone.
Okay, thank you.
Thank you. Next question from Andreas Heine MainFirst . Please go ahead.
Yeah, actually, thank you for the opportunity to ask. I have three. I'd like to come back to the question before. If you look on April, you said your sales were down by 70% and excluding scope, 20%. Are there differences between your business line, or is that all over the place in this magnitude? Secondly, we heard that Arkema just restarted production. Is there anything in the incoming orders that you see a pickup, or is that still very, very slow? Maybe one word on ArrMaz in the current environment, how is that business doing in this changed environment? Thank you.
ArrMaz, which is into nutrition and mining, is quite resilient. It's good to be out because we put it not so long ago, and we are pleased because it's one of the business which are resilient and worth their while. To come back to your point, there are variation between You see that when you look by country, by any basket, the picture, not only is very different, depending on which country, which market you are talking about, but the picture is changing from week to week, month to month. For example, Anrilyse, which has been quite resilient in the first quarter, will temporarily, at least couple of months, suffer significant, just because of construction, but is linked to lockdown measures. When this lockdown measure will ease, they will pick up quite quickly. It's really a very evolving situation.
It's very difficult to give you the guidance by end market, by country. Sometimes it's just political measures. You take South East Asia. Singapore was quite okay for everybody. Suddenly, it was lockdown. Philippines was assumed to start again, and it's important for Anrilyse in early May. After that, it was mid-May. It's an ever-changing situation. This is why the global picture is certainly more accurate than when you start to dig in, because I can tell you things which will be wrong tomorrow. So far, with regard to the global picture, we have not been so wrong, even if we don't share everything with you because there is uncertainty, and we certainly don't want to commit to things that will change tomorrow.
I think it was important for us to share this information on April, saying that our sales in April were around -17%, which means -20% at constant scope. I think it's information which has value for you. With regard to May, again, we believe that May approach will be the same kind of magnitude. Again, it's not a guidance for me because there is still a lot of uncertainty, and sometimes there are political uncertainties. Our feeling, but again, it's a feeling which is not a guidance, it's a feeling, is that with progressive lifting of the lockdown in different countries, June should start to be a little bit better. This is what we see. With the second semester, we should show some improvement. Again, there are a lot of speculation and of feeling, but this is what we wanted to share with you.
We don't want to be more precise because, again, there are plenty of elements which don't depend at all on Arkema or on you or on any company. It's just how the sanitary component will evolve, and these are still uncertainties, including my own country. When I see in France, you listen to politics, there are still a lot of questions. We try to give you a sort of global framework on which you can work, and we will certainly, probably, in the summer, be able to be more specific. Okay?
Okay, thanks.
The important point, again, is that this is something we said clearly on the Capital Markets Day. We said again, we are beyond the difficulties of the context with regard to the solidity of Arkema, our ability to go through the crisis, our ability to rebound when it will be time to rebound, we have no doubt. Okay. Last question.
Thank you. Yes, we have one last question from [Ryan Tomkins from Jefferies.] .
Hi, good morning. Good afternoon, and thanks for taking my question. Thierry, just one for you. There were reports in February that claimed Arkema attracted the interest of activist investor Elliott, with Arkema taking preemptive action to review its portfolio. I am just wondering, in light of a little bit of what you said about the strategy, could you give an update as to where the overall M&A plans stand right now and whether that strategy has been affected by coronavirus at all? Thanks.
I think we have been Good answer, but I will answer very simply. We have a strategy which has been very clear, which has been presented, I'm sure you understand, that at the Capital Market Day, everything is there. Our strategy is very clear. It's a month ago. I think we cannot be more clear than that. We know exactly what we want to do. It's a roadmap for 2024. It's very consistent with what we have been saying after. It answers many of the questions that you guys were asking to yourself about Arkema. I think just look at it, read it. If you have questions on this Capital Market Day, we'll be certainly open to answer more in detail. I think really the document is very well written, and the script is very clear.
If you listen to the script, everything is there. You know exactly what we want to do, and we've had a lot of support about this roadmap.
Nothing has changed.
Nothing has changed at all. It's on the move. We are very determined on this roadmap.
Okay, thanks.
Okay. Thank you very much for all your questions. I think it was quite a busy call, but we appreciated all the different questions. I wish you good luck in the context, and with regard to ourselves, we continue to work as hard as usual. Thank you.
Thank you, ladies and gentlemen. This concludes conference call. Thank you all for your participation. You may now disconnect your line.