Ladies and gentlemen, welcome to the Arkema's full year 2019 results conference call. I now hand over to Thierry Le Hénaff, CEO. Sir, please go ahead.
Thank you. Good morning, everyone. Welcome to Arkema's 2019 results conference call. With me today are Marie-José Donsion, our CFO, and also the investor relations team. To support this conference call, we have posted on our website a set of slides which includes the highlights of the full year performance, year outlook for 2020, details on the progress we are making with regard to our transformation, and also our recently updated CSR policy, which includes new, more ambitious climate and environmental targets for 2030. After commenting this set of results with Marie-José, you will be able to ask the question you may have to myself and Marie-José. Starting with the highlights of 2019, I would like to underline four main points.
The first one is that Arkema achieved, in 2019, another year of strong, resilient financial results with a EBITDA of EUR 1,457 million, which is broadly in line with 2018's record performance. As you know, this was done in a challenging macroeconomic environment, which was marked by persistent geopolitical tensions and also slowdown in some key end markets, particularly in the second half of the year, like automotive or electronics. In this context, and we are proud of this achievement, we also managed to deliver robust end to the year with Q4 EBITDA growing 3%. Second point, which I think it's a very strong point. We generated an outstanding level of free cash flow, EUR 667 million, which is, from memory, a record amount, up strongly versus last year.
2019 result, from our standpoint, reflects the quality and the balance of our portfolio of businesses with what you expect, which is a growing share of specialties, which deliver solid growth, whilst intermediate businesses were impacted mainly by the very weak market conditions in fluorogases, as we discussed all along last year. To make your analysis easier, and I think Marie-José will come back on that, we provided the respective EBITDA growth of specialties versus intermediates. We continue to implement actively our strategy of transformation with a high density of industrial project startups, significant M&A activity in 2019, and exciting R&D initiatives. As you know, since 2006, we have never stopped transforming the portfolio. 2019 was another good illustration of this. We have strengthened the profile of Arkema by reinforcing again the share of specialties, which went from 40% of our revenues to 75% pro forma last year.
As announced with regard to the whole strategy, we give an update at our Capital Markets Day on April 2nd. These actions, as well as the quality of our financial performance, support the confidence of the group in the long term, and also the decision of the board to propose a dividend notable increase, plus 8%, which would represent a total amount of EUR 205 million in 2019. After this brief introduction and this underlining of key points, let's have a closer look at various businesses. I will start with Specialties. First of all, Adhesives. They deliver a remarkable performance, I think, with EBITDA growing in the high teens, driven by the momentum of new business development in construction and structural bonding, which are two areas which are growing year after year.
The benefit also of the pricing action we took in 2018 and in the first part of 2019 with stable raw materials, a little bit favorable, and also synergies from past acquisition, including Den Braven. Having mostly recouped the impact from higher raw material, which has started in 2016, EBITDA margin now stands at close to 13%. Consistent with our plans and what we said last year. We have still this ambition to reach 15% and higher in the medium term. Meanwhile, we continue to make value-added bolt-on acquisition with Prochimir, and more recently with LIP, which is a Scandinavian leader in construction chemicals, which we finalized early January. We'll continue this bolt-on strategy on adhesives in 2020. I move now to Advanced Materials.
They deliver a rather resilient performance despite lower volume, which we saw especially in the transportation, oil and gas, and consumer electronic sectors. No surprise there. Everybody knows the trend of these businesses last year. Our advanced material line benefited from the integration of ArrMaz, which delivered a good performance in line with our expectations. The teams also work hard to optimize product mix toward higher value application, which helps maintain profitability at a good level. Last and not least, we benefited from our continued innovation drive, which, for example, led to significant growth in attractive markets like 3D printing, batteries, or lightweight polymers. Many exciting opportunities still lie ahead. In composite, during the spring of 2019, we opened a joint R&D laboratory in France with Hexcel, the leader in carbon fiber composite, especially for future generation of aircraft.
In 3D printing, we signed an agreement with Autodesk and Farsoon to develop optimized software, hardware, advanced materials ecosystem with the goal of accelerating industrial production with polymer laser sintering. We inaugurated last November a new center of excellence for 3D printing in France, which complement what we have in the U.S. in two centers. This effort should ensure we stay well positioned to capture growth in really the rapidly attractive 3D printing market. Finally, not covering everything and all the lines, Thiochemicals performed very well in 2019 in context of growing end markets. As you all know, the performance of our intermediate product line in 2019 was impacted by weak market condition in fluorogases, where illegal import of HFCs in Europe weighed materially on volume and prices. In MMA/PMMA, the year was marked by normalization. It was expected.
The impact of this normalization was softened by our strong integration along the chain. It's one of the very strong element of our MMA/PMMA positioning, the benefits of innovation and somewhat more favorable raw materials. Finally, Acrylic deliver solid volume growth in 2019, thanks to the diversity of the end market, mainly in Asia and U.S., where our new state-of-the-art reactor in Clear Lake started in the summer. This strong growth of volume offset some more weakness at the end of the year in the spread. Overall, we delivered a very solid set of results in 2019 in a complex macroeconomic environment while pursuing our transformation and making further progress toward our 2023 objective of making at least 80% of sales in specialty.
The share of specialties now stand at pro forma with impact of the acquisition of ArrMaz, Prochimir, Lambson, and LIP, as well as the proposed divestment of the functional polyolefins business, which should be finalized in the second quarter, stands at 75% pro forma. Going forward, we'll continue to look for small and medium-sized acquisition targets with the right strategic fit and synergy potential on our three growth platforms, namely adhesives, advanced material, and performance coatings. 2019 was also a rich year in terms of organic project in higher growth market region. We started our first large-scale PEKK plant in the U.S. after 10 years of development of this incredible polymer in R&D. We increased specialty polyimide powders capacity in Mont, in France, by 50%. Very attractive product line. We expanded Sartomer's capacity in China by 30%, and we started a powder coating resin facility in India.
In 2021, our major project, the doubling of capacity of our Kerteh unit in Malaysia and Thiochemicals, is expected to start shortly. Project for the second half of the year, if I stay with the CapEx, includes a 25% expansion of Polyamide 12 capacity and the 50% PVDF expansion dedicated to batteries both in Changshu and China. We're also ramping up our construction of our PA11 plant in Singapore, which is really an absolutely major important project. It's expected to start in 2022. This high return CapEx project should enable the group to capture the structural growth opportunities, which are incredible in materials long term.
As I said at the beginning, reflecting our confidence in Arkema's long-term prospects, solid cash flow generation, the board of directors will propose to increase the dividend by 8% to EUR 2.70 per share, compared to EUR 2.50 per share last year, which mean a significant increase in the payout ratio to 33% versus 26% last year. Before concluding my initial remarks, I would like to highlight Arkema commitment to corporate social responsibility. You know that is very important for me. It's very important for our management and our board. It's an integral part of our business and strategy. Having already reached or made significant progress toward our 2025 social, environmental, and safety targets, we have decided to unveil new environmental and climate change targets for 2030.
Specifically, as part of our commitment to the Paris Agreement, we have introduced a new science-based greenhouse gas reduction target, which calls for reduction of greenhouse gas emission of 38% by 2030, relative to 2015. Very significant decrease, very ambitious target indeed. I hope it reflects the importance environmental issues have in all employee decision process today inside Arkema. I would like also to add that two corporate social responsibility criteria, diversity and greenhouse gas emission have been included as part of my own long-term incentive scheme. Thank you for your attention. Now I'd like to turn over the call to our CFO, Marie-José, who will detail the 2019 financial performance.
Thank you, Thierry. Good morning, everyone. I'd like to start with some comments on our fourth quarter results. The economic context remained challenging, translating into a EUR 2 billion sales level for the quarter, which represents a 10% organic decrease compared to last year's Q4. Half of the impact came from volumes, and the other half from the price effect, reflecting in particular, the lower price of propylene on the Coating Solutions segment. At EUR 295 million, though, the EBITDA was up 3% from last year's already strong performance, reaching a 14.4% margin level. Looking at each division, in High Performance Materials we achieved strong results with EBITDA up 12%, thanks in particular to continued growth at Bostik and to the integration of ArrMaz.
Sales were up 1.3%, benefiting from pricing actions and favorable product mix, despite a 7% decrease in volumes coming from specific industries as well as general customer destocking. Industrial Specialties had a rather contrasted performance. On one hand, Thiochemicals and hydrogen peroxide delivered another good quarter, and MMA/PMMA remained resilient, helped by our footprint in the U.S. and our high level of integration. On the other hand, fluorogases still suffered from the illegal HFC imports in Europe, as Thierry mentioned. Finally, Coating Solutions posted a 13% sales decline in Q4, driven by the mechanical impact of lower propylene prices as well as a 3% volume decline. EBITDA came in at EUR 36 million versus EUR 44 million last year, as a better downstream unit margins could not fully offset less favorable market conditions in upstream activities. I propose we move on now to our full year 2019 numbers.
Let's start with the P&L. Our sales reached EUR 8.7 billion, broadly in line with last year's level, including a positive 2% currency effect, mainly due to a stronger U.S. dollar versus euro, and a positive scope effect of 1.8%, mainly corresponding to the integration of ArrMaz in July. Volumes were down 2.4%, mainly due to lower demand in High Performance Materials, the price effect was a negative 2.3% localized in Coating Solutions and Fluorogases, which offset positive pricing across our specialty business lines. EBITDA at EUR 1.46 billion was similar to last year's record level, the EBITDA margin was stable at 16.7%. What does that mean in terms of contribution mix between specialties and intermediates? It actually means that specialties delivered an EBITDA growth of more than EUR 100 million, partly offsetting the contribution from intermediates that actually declined by more than EUR 100 million in EBITDA.
Our recurring EBIT reached EUR 926 million versus just over EUR 1 billion last year. This translated into a REBIT margin at 10.6%. The non-recurring charges amounted to EUR 73 million, so mainly corresponding to restructuring charges and asset impairments. Financial results at EUR 116 million was impacted by the higher interest rates on our U.S. dollar debt. In 2020, we could assume the financial result to benefit from the refinancing of our EUR 480 million senior notes that are maturing in April 2020, and that would represent roughly a EUR 10 million saving. Taxes stood at EUR 137 million, which, excluding exceptional items, correspond to a tax rate of 19% of our REBIT, which is unchanged year-over-year. For 2020, we anticipate the tax rate on REBIT to be around 20% as well.
Finally, 2019 adjusted net income came in at EUR 625 million, or EUR 8.2 per share, if you like. A few comments now on cash flow and net debt. As mentioned by Thierry, at EUR 667 million, the free cash flow generation was once again the highlight for us this year. This reflects an inflow from working capital resulting from tight control, lower activity levels towards the end of the year, and lower raw material prices indeed. This corresponds to an exceptional EBITDA to cash conversion rate of 52% compared to the 38% achieved last year. At, let's say, 13.8% of our sales, working capital ratio is close to last year's figure. Recurring CapEx came in at EUR 511 million, which represents 5.8% of our sales. Exceptional CapEx amounted to EUR 96 million and reflect the progress of our Thiochemicals expansion in Malaysia and our specialty polyamide plant in Asia.
For 2020, the sum of recurring and exceptional capital expenditure should amount to around EUR 700 million in total, of which EUR 200 million exceptional CapEx are linked to the ramp-up, in particular, of the Singapore plant. Net debt rose by around EUR 600 million during the year to just over EUR 1.6 billion at end of December 2019, including EUR 729 million spent on acquisitions and EUR 154 million linked to the application of IFRS 16 on 1st of January 2019. With a net debt to EBITDA ratio of 1.1 x excluding our EUR 700 million hybrid financing, our balance sheet, of course, remains very healthy. This would conclude my presentation, and I now hand it over to Thierry for the comments on the outlook.
Marie-José, thank you. Now the outlook. Looking ahead, we expect the economic environment, no surprise, to remain volatile this year, with challenging also. In this context, in 2020, as we mentioned in the slides and in the press release, Arkema aims to reach an EBITDA comparable to the 2019 very solid level, excluding the impact of the COVID-19. For the full year, I will give you some color, excluding again the impact of the COVID-19 on the main drivers, without going into every business. Bostik, I think is again expected to be an important driver for the group and should achieve around 10% EBITDA growth, including a couple of small bolt-on acquisitions, which will be, again, a combination of organic and small acquisition.
Thanks to further progress on synergies, operational excellence measure, there's still room there. We assume stable raw material, which is a lead for the whole group. Advanced Materials contribution should be broadly stable despite expected continued weakness in auto and electronics on the first part of the year, where if we don't see discontinuity in the trend compared to what we saw for the time being last year or second semester, while fluorogases should decline a bit to a much lesser extent than last year. We still should have some decline in fluorogases because of this illegal import issue. As we have shown in 2019, we'll maintain a strong focus on our operational excellence measures.
We usually don't comment broadly on all the savings we are making, but I can tell you, and the last year example was a good one, we really are focused on that through the organization, and we plan to offset at least half of cost inflation by fixed cost improvement and by variable cost improvement. Normally, we do better than that. We'll certainly remain agile. This is a message which is passed through the organization and adapt to this economic environment as it evolves. In terms of seasonality, we expect, for different reasons, a more balanced contribution between the two halves relative to last year. One of the reason being the COVID-19. Regarding this COVID-19, as everybody knows, visibility is low at this stage. The situation is changing nearly every week. We know with some cases in Europe.
While we do not have any factories in the Hubei province, I mention it because it has been asked to us, this question came through many times. We don't have any factories in the Hubei province. Like many companies, we have been facing a strong slowdown in demand from our customers who are themselves impacted. We also face challenges with regard to the transportation of goods, transportation of raw material. We have restriction and driver quarantine in China, like many companies. As you know, China represents 12% of our sales and Asia 25%. It seems to us that in the recent days, the epidemic was stabilizing in China, but we have to remain cautious. On the contrary, spreading in some countries in Europe and the U.S.
As written in the press release this morning, we estimate the negative EBITDA impact at the end of February, which mean including January and February, around EUR 20 million. We got also some question on the split. This includes around EUR 5 million in January and EUR 15 million in February. It's our position, we don't want to speculate with regard to the impact going forward. There is still uncertainty on how the situation evolve. It's too early to gauge the final impact at this stage. Finally, I hope to see as many of you as possible at our Capital Markets Day in London on April 2nd, during which we will present the group's long-term strategy and growth project. I thank you very much for your attention. We are now together with Marie-José ready to answer your questions. Thank you.
Thank you, ladies and gentlemen. If you wish to ask a question, please press zero one on your telephone keypad. It's zero and one on your telephone keypad. We have first question from Martin Roediger from Kepler Cheuvreux. Please go ahead.
Hello. Good afternoon. Thanks for taking my questions. I have three, please. First, on the news that you have filed an anti-dumping petition on refrigerant R32 in the U.S. due to Chinese imports there. What is the situation and the prospects for fluorochemicals in North America? You just today spoke about Europe. The second question is on Coating Solutions. Here, especially, on scope effects, because I remember in Q3 you had a positive scope effect in sales from the acquisition of the Euron stake in Taixing Sunke. In Q4 there was no scope effect at all. Why not? The third question, picking up some news from Bloomberg in recent days, do you really prepare disposals? If so, what do you see as your priority? Thank you.
Okay. Thank you, Martin, for your question. As you know, we filed an anti-dumping recently on component in the U.S., it's a process which will take some time. I will not comment on it. With regard to the situation on fluorogas in North America, I would consider it, which is a difference with Europe, where we have this uncertainty on illegal import. I would consider it as stable. Okay, maybe we'll get some side, we'll see. For the time being, my starting point is that it should be rather stable year-on-year. It's still the first months of the year are low season, it's too early to plan for the full year. We'll know more on the spring. Let's say stable.
With regard to Coating Solutions, you have to consider Sunke really as a capacity addition, which we made really at the perfect time because since the market, when we negotiate this capacity addition, which was to buy the 50% remaining of Sunke, was at that time China spread was quite low. We could get it really for a cost, for an investment in a plant of this quality, which was really absolutely uniquely low. We got it. If you take it as a capacity, then you have to consider that at the end of the last year and second part of last year, volumes were because of the seasonality, but also because of some uncertainty on China, were a bit weak, and we did not need this capacity. It's a long-term shot.
As you know, with regard to our position in acrylics in China and in Asia, where we are working on downstream development, rebalancing the upstream, we have still some way to go. To answer precisely to your question, on the second part of last year, we did not need more capacity. Okay. With regard and for the sake of the efficiency of our discussion today, otherwise we'll spend a lot of time. I think you know us since now, especially you, Martin, a lot of time. You know that our policy have never changed about any comment. It can be on shareholder, it can be on portfolio movement, whatever, we never comment. I have no more comments. You know that we have, and you mentioned it, a Capital Markets Day, which will come on April 2nd.
You know that we have this Capital Markets Day organized every three years. It will be an opportunity for you, and hopefully you will be there, to see us presenting an update of our strategy, a full in-depth review of the Arkema strategy in all the components, as we do for every Capital Markets Day with innovation, with major organic CapEx and with M&A. Also there will be certainly a part on CSR. I wanted to make the point clear in order to save time in the discussion. Okay.
Thanks.
Thank you. Next question from Matthew Yates from Bank of America.
I apologize if I'm going to preempt that April presentation, but a couple of questions, please. The first one is around your carbon targets, which are obviously quite long dated in terms of the timeframe. Does that begin to influence the way you think about the portfolio? As you said in your introduction, since 2006, you've been constantly transforming it. Does this greater focus on carbon emissions maybe accelerate some of the changes to the portfolio? The second question is around CapEx. You helpfully outlined in the slides the projects you're doing and the high returns you expect on those. It looks a very good use of capital. Can you comment about your sort of pipeline of additional projects beyond 2020? Should we expect continuation of high CapEx, high return projects, or will we see that moderate and cash generation increase?
Okay. First of all, with regard to carbon emission, it's clear that every big project of the company first, is integrating now the price of carbon, which is higher and higher. The last one is EUR 50. We take now EUR 50, and it's including the internal rate of return of the capital expenditures that we have, and also in our decision process. Beyond the economics, which are often not so much impacted by the decision, what is important is that it oblige us to raise question with regard to the impact of our manufacturing process and if we can do better when we build or expand a plant. It's really a very positive way of thinking. Now with regard to the portfolio, we assess ongoing list since now two years, the portfolio of Arkema, not only with this angle, but with this angle.
By definition, it can influence. I don't say it will influence, but it can influence. It's taken into account when we think about the strategy organic and also M&A of Arkema. Hopefully it's the case for Arkema, but it's the case for many chemical company today. With regard to the CapEx, clearly we are very selective in organic growth. We have invested a lot in Asia in the past 10, 15 years because our positioning there was very limited. We had to do what our predecessor had not done, which was to put modern and significant plant in Asia. I would say we have covered a lot of ground there. It does not mean that the road is finished, but we have still some way to go. At least we have caught up with our best competitors. There will be still plants and investment there.
Beyond that, the fashion when we started Arkema was more about the emerging countries. Now the fashion is more about the megatrends, especially I think about electronics, batteries, lightweight material, and this could trigger some important CapEx. This is why, and we'll certainly not do it before the Capital Markets Day. We'll continue with some CapEx of major investment, but we'll be very selective on that.
Very good. Thanks a lot.
You're welcome.
Thank you. Next question from Georgina Fraser from Goldman Sachs. Please go ahead.
Hi. Good afternoon to you, Thierry and Marie-José. Thanks for taking my questions. I've got three. The first one is on adhesives. Could you give us an idea of what the run rate margin is for Bostik at the moment? I know that we talked about around about 13% at the third quarter. Just wondering if it's inched up a little bit with raw materials coming off. In your guidance for EUR 300 million EBITDA in 2020, can you help quantify how much of that growth is from scope and whether those acquisitions have already been announced or you're factoring in some new ones to come in 2020? Second question on CapEx. Just wanted to understand, is there a risk that your medium term exceptional CapEx guidance needs to be raised? At the previous Capital Markets Day, you talked about EUR 500 million over 2018-2021.
I also wanted to just have a refresher of exactly the breakdown of your overall CapEx guide in terms of what is maintenance, what is growth, and what is exceptional. Then finally, just on cost savings. Given the challenging macro backdrop, we've had a lot of peers announce cost savings programs, and you have mentioned today inflation offsetting measures. I was just wondering if there is scope for further actions if the business environment continues to deteriorate. Thank you.
Okay, Georgina. You went very fast. I will try to cover everything maybe in the right direction. Béatrice is next to me to control the question. Okay, let's start. With regard to adhesives, I would say that currently we are just starting the year. Our run rate is consistent with last year, around 13%. We plan to increase it a little bit again this year, if at least half a point every year. After that, it depends also on our appetite for some bolt-on acquisition, but at least half a point every year is a good target. I will answer on the CapEx, before that, because I have in mind the cost savings not to forget. I know that we are different from our competitor and I respect all type of communication.
It's true that with our style and you know us, we are not the one who put in front all the competitiveness that we are implementing. Most of what you see from competitors is never net of inflation. In fact, at the end, either they cover inflation or they cover a part of inflation. We are very aligned with them. What is clear, you have seen the quality and hopefully you have been positively surprised of our EBITDA in the fourth quarter. You can imagine that to deliver this quality of EBITDA in the first quarter, in the kind of environment we have faced in the fourth quarter, the impact of further competitiveness both on variable costs and fixed costs has been there. We have been very reactive, very agile, but we try not to put this big plan.
What is clear is that ongoingly every year to offset at least half of the inflation. Last year, at the end of the year, in fact, we nearly cover the full inflation between value cost savings and fixed cost saving is quite a significant step. Let's continue on this track. I think we navigate well with the environment. With regard to the EBITDA of Bostik of EUR 300 million of 2020, I will not give you the split. It will be compared to this year, or I can nearly give you the split, is nearly between the organic improvement and what will come from Bolton acquisition is nearly half and half. Okay? It's a split between the two. With all the data I will give you should have a good idea with a simple math of where we stood in EBITDA in 2019.
You see what we target for 2020. You can take half-half between Bostik and acquisition and organic, which means that organic continue to be quite strong. With regard to the CapEx split and the exceptional CapEx, your question with regard to the CapEx split, we have before exceptional, half between maintenance and growth. Sometime we are a bit more in maintenance than in growth because the pressure on regulation is bigger and bigger. Some years you can go to 55% for maintenance and 45% for growth. With regard the question on exceptional, little bit back to the question of Matthew, for the view of what we have today. We will update you on the Capital Markets Day by definition. Okay?
On these two projects that are today in the envelope of exceptional CapEx, where we get EUR 500 million, we just need to take into account the euro-dollar, which has been a little bit higher dollar, but this is the main point. We are really very consistent with the envelope that we have disclosed to the market.
Fantastic. That was really helpful. Thanks, Thierry.
Okay. Thank you very much.
Thank you. Next question from Mubasher Chaudhry from Citi. Please go ahead.
Hi. Thank you for taking my questions. Mine are a little bit on the guidance. On the outlook, can you provide some color on fluorogases and acrylics markets? For fluorogases, should we be expecting to go back to kind of 2015 and 2016 levels of sales? On the acrylic side, are you seeing any improvement in upstream margins as you go into the new year? Secondly, just to clarify on the guidance, does that include the impact of the bolt-ons, or will any bolt-ons that are incrementally carried out from this point forward are going to be on top of the guidance that you've announced? Thank you.
Okay. With regard to the fluorogases, I've not exactly in mind. We come back to you later where we were in 2015, 2016. What I can say is that last year we had a significant drop, which took us below the 2017 level and between closer to the 2016, but in between 2016 and 2017, a little bit closer to 2016. After that, we should continue to decline a bit, not at all the same magnitude as we had last year, but still a bit. We'll get back to a level which are closer to 2016. We need to check that. It's a good question. I was thinking about 2016, 2017, so yes, 2016 should be certainly the place. After that, illegal import at a certain point will be solved. The only thing is that we want to stay cautious on this year.
I think it will take some time for it to normalize, so we have to be a bit patient there. With regard to acrylic, it's a low season, it's difficult to comment. For the time being, we don't see any discontinuity. Don't forget that the discontinuity we had in the Q4 was more in Asia. Okay. Asia is very difficult to read because China has been very impacted by the virus. Plus you have the Chinese New Year, so it's very difficult to give you any insight there. You need to wait a bit more that we enter the spring to tell you where we stand with acrylic. With regard to the guidance, if it includes Bolton, it includes release from Bolton.
At the end, I would say with the guidance, which is comparable that we give at the beginning of the year, frankly speaking, it's another two bolt-on acquisition that we are going to make in adhesives on top of LIP, which will make any significant difference. For me, it's not material. Okay.
Thank you very much.
Thank you. Next question from Jaideep Pandya from Millennium. Please go ahead.
Thank you. Thierry, I want to ask you firstly on fluorogases. It's a question for 2021, when the next set of regulation kicks in Europe. If you think that there is any sort of regulations that are coming in China or phase out. Just want to know what your view is, how the industry's going to react in Europe and then in China. The second question is just around acrylic acid. We are starting to see more and more supply come in countries which used to be natural importers, like India, for instance. When do you really think that we will globally be in a mid-cycle world? Do you think that in your planning assumptions now you've just taken that out?
Lastly, on Polyamide 11, could you just tell us how tight are you today, i.e., if there are 100 customers, only 50 are getting this product and therefore, when the supply comes in 2022, 2023, you already have decent level of demand to fill that plant. Thank you.
On fluorogas, with regard to regulation in China, I've not the full picture on my definition because it's an evolving picture. My feeling is that it will really take time in China to implement the new regulation. For me, it's not a topic for 2021. With regard to acrylic, by the way, we are not far from mid-cycle. It's not like, I don't know your view of acrylic, and it was mostly, I would say the mid-cycle was mostly a matter of the end of the year, especially with some slowdown in China that everybody has identified. With regard to new capacity, India, which will take time. I think when I started Arkema, you had already three project in India which have never gone through. It's a complicated country from this standpoint, but maybe this one will go through.
I think it's a market acrylic, which is growing every year at GDP plus, supported by water treatment, by SAP, so superabsorbent, et cetera. It's a growing market and from a demand standpoint, quite healthy market. You have new capacity coming, but it's far more reasonable than it has been five years ago. I know you cannot compare, so it's more for now, I would say, step by step. At the same time, you have some closure of old site because your site which really have been built at a period where it was built cheaply, especially in China. Overall, no, we don't change our assumption what we have told you on acrylics over the past year. For us, as you know, the important part of the strategy is really to develop the downstream.
If you look at the evolution of the Coating Solutions margin, even if on the value we have to continue to increase, I would say in terms of resilience over the past year, despite some volatility on the acrylics, you could see that this mechanism, which values integration, is working very well because the segment itself has been very resilient. With regard to Polyamide 11, first of all, up until early last year, it was very tight. Incredible. After that, you got automotive and electronics. Certainly, the tightness has been eased, but it's really temporary. We are not anxious about that. The new business pipeline is quite good. After that, if your question is that for the specialty business, you start the plant and the six months after the plant is full, no, it doesn't work like that. They are specialties. They need homologation. It's high-value product.
We have already said that the ramp up to fulfill the plant will be four to five years. It's a greenfield plant. It's important capacity. We don't want to push too quickly the volume on the market. We want to do it really with a high specialty view, high value, so it will take four to five years, but profitability of the plant will be quite strong. We are very confident about the timing of this new plant, early 2022, the use of the plant, and the plant will be profitable quite quickly and very profitable after four, five years once the ramp-up has been fully achieved.
Sorry, just on F-gas for 2021, do you think that could be sort of a fresh oxygen for European fluorogas next year?
Frankly speaking, last year we were hit, and I'm honest about that. We did not forecast it. We have been hit by legal import. I will not just now starting 2020 tell you what will be in 2021. What is sure is that the starting point of end of 2018 is far more normalized than the one of end of 2019, sorry, is far more normalized than the one of 2018, which is from this standpoint, once it was swallowed, good news.
Thank you so much, Thierry. Thank you.
Thank you. Next question from Geoff Haire from UBS. Go ahead.
Good afternoon. Thank you for the opportunity to ask a question. I just wanted to touch on Thiochemicals. Clearly, at least looking at the mix for Q4, you had a very strong delivery in profitability in biochemicals. I just wonder if you could run through what exactly is driving the increase in profitability of biochemicals. Thank you.
I cannot comment on every quarter on every business line. What is clear is that, and it's not just the first quarter, it's all along the year, Thiochemicals has been performing very well. As you know, we have about 50% of the Thiochemicals, which is for animal feed, which is a growing market, steadily growing. Even if there are some over capacity for the end consumer, I think we are well-positioned with our partners with one element. Then you have the new desulfurization, though, which help also in the oil and gas segment. Plus some specialties that we don't mention too much, but which are developing. Overall, if you add everything, I think it's a nice specialty business, which are the three, four main segments, and which are, in terms of end market growth, doing well.
Is it mix, then, that's driving margin?
Yes, the mix is driving the margin a little bit, but the margin has not increased significantly. The mix is going in the right direction. You know, what you saw in 2019 is something that you have seen in many years during the period 2006, 2019. It's not like suddenly 2019, Thiochemicals was waking up. It has been an ongoing development. Not every year. Last year was especially good. I think the end markets are quite healthy. We are really a leader in this segment, which helps.
Thank you.
Thank you. Next question from Alex Stewart from Barclays, please go ahead.
Hi, Thierry, Marie.
Hello, Alex.
Thanks for taking my question. Hi there. The first one was quite straightforward, I hope. Your comment about seasonality, can I just clarify, when you say that you expect it to be more even, does that mean closer to 50/50 in 2020, or do you just mean more balanced, so more normal than it was last year? I'm a bit confused about what that means. The second question, which is less easy, I'm afraid, you make a comment in the release saying there was a solid performance in all the other business lines in Industrial Specialties. If I look at the revenue performance, hydrogen peroxide revenue was down 6%, which is one of the biggest year-on-year declines for years. Biochemicals revenue was down 10%, which is one of the biggest year-on-year declines for years.
It actually looks like there's quite a lot of top-line pressure in the other segments in the fourth quarter. Could you just help me understand whether there's something specific going on at the top line, which isn't impacting earnings or whether something is changing in those segments would be extremely helpful? Thank you.
Okay. With regard to the seasonality, in fact, as you know, not every year is the same. Last year was stronger in the first half, and not atypically, but was a little bit atypical, stronger in the first half than the second half. A little bit on the high side. This year will be more the reverse because you compare year-on-year, so you know how it works, and you have some specific element this year on the beginning of the year. I would say, we'll see at the end of the year if it is half-half or still a bit more on the first semester than the second one. We cannot give you the level of precision now. What is clear is that compared to last year, which was more heavy on the first semester than the second one, it will get closer to the half-half. Okay.
It's more a question of comparison and also the fact that you have the virus on the first half, which will impact. Even without the virus, I think we would have said the same thing. Okay? With regard to the H2O2, and we'll come back to you on the Industrial Specialties, because I was surprised by your comment, and I check, talking to you, to the team. Béatrice, tell me if I'm right, is that there was a rounding error?
Yeah, it's not an error, but you have wrong figures, so it's difficult to assess properly exactly the figures for each business line. Regarding H2O2, in fact, it has been a flattish year-on-year in Q4.
Yeah. Okay, so this is.
It is.
Yeah. Okay.
This is what I had in mind, but I was surprised by your question. Béatrice is confirming that.
Yeah.
Okay, she will come back to you precisely on this point, okay. To make no mistake.
Okay. Thank you, Thierry. That is very kind of you to clarify that. Maybe it would just be really useful if you could give us the exact sales numbers for the different segments, because I know you've always given a percentage, but this does introduce rounding error, which is frustrating. Perhaps something to think about.
I think we do.
I know you've been reticent in the past.
We do otherwise, but I will not comment now. I think Béatrice will come back to you. We are sure we understand exactly, you are clear, we are okay, and that's good. Okay, thank you.
Thank you very much.
Yeah. Okay.
Okay, next question from Laurent Favre from Exane BNP Paribas. Please go ahead.
Yes. Good afternoon, all.
Good afternoon.
Good afternoon. Thierry, not to pre-empt the CMD in London or Paris.
Thank you very much.
I'm a bit puzzled now if it's Paris or London. On the dividend, I was wondering if you could tell us, I guess, how we should be thinking about a dividend increase for 2019 given what happened to operating profit on one side, on the other side, cash flow being stronger. I mean, the 8% increase, is it driven by your view on where the payout should go ultimately, or was there something else driving this increase of the dividend? I guess that's the first question. The second question on slide number 19. Specialty is up 13%, 20% decline in intermediate. I don't remember you disclosing, I guess, numbers or profit numbers in this way.
Could you maybe help us understand, I guess, what is your thinking around that disclosure, also maybe can you help us understand, what the starting point was in terms of EBITDA? That would be very helpful. Excluding conflict costs, for instance, for the two clusters. Thank you.
On the second one, I would ask Marie-José to answer. She will do it perfectly. On the dividend, if you look at the past four years, the average was 9% increase. Now we do 8%. You're right to say that the net result is below, even if the EBITDA is comparable. On the other side, the cash is quite good. The board wanted to show the confidence as in the long run of the company. There is nothing behind that more than that. We are confident in the long run. We have the space in the balance sheet to continue to have a nice increase. I hope our shareholders will appreciate that. It's more good news than bad news. It's consistent with what we have delivered.
Sometimes when we have a wonderful year, some people say, "Yeah, but why don't you increase the dividend more than that?" What we try to do, it was something rather regular, visible. I think it's consistent with this approach, nothing more than that. I think it's good news, good cash, solid results. If you look at the payout ratio, it's still something which is completely affordable for Arkema. I think we are below some peers. No, nothing special except that we are confident and we wanted to return this amount to our shareholders. That is completely consistent with what we did in the past. Maybe Marie-José on the second question of Laurent.
Regarding the mix of EBITDA contribution, as you know, we give basically a rough split of the portfolio between the portion that is more volatile and the portion that is more resilient, and that we call specialties. We express normally this ratio in terms of sales, we thought it was, let's say, important to share with you the magnitude, let's say, of what has happened in the intermediates this year. That was in fact, clearly largely offset by the improvement in the specialty businesses. That's why I mentioned that we have in 2019 more than EUR 100 million improvement on the EBITDA contribution of the specialty businesses, which actually, almost fully offset the decrease in EBITDA that we faced from the intermediate activities. I thought it was helpful, but maybe not.
No, no, it's extremely helpful as always. When I try to reconcile the two starting points, I ended up with almost EUR 650 million of EBITDA from intermediates, which was certainly a lot higher than what I had in mind, and presumably a lot of investors and analysts as well. I was just wondering if you could confirm that, actually, ExperiMay and Fluorogases in 2019, let's say, was around EUR 5 million-EUR 550 million still?
Let's review offline whatever the assumptions were. As you know, we don't disclose the EBITDA in this format. Otherwise, it would be actually part of the document. It is important that you see the magnitude of the swings and the resilience of the specialty portfolio that we have in Arkema, and that clearly has performed extremely well in 2019, despite quite adverse economic environment.
Okay. Thank you.
Let's review separately.
Also maybe to complete what Marie-José is saying, I think it also reflects our strategy and the benefit of the strategy, to reinforce the size of the specialty, not only in terms of the size revenues, but also in terms of profitability. I think, for those investors who appreciate this move to specialty, I think it's good news, and it was important to give you these elements.
Thank you.
Thank you. Last question for the moment from Chetan Udeshi from JP Morgan. Please go ahead.
Yeah. Hi. Thanks. One clarification and one other question. One clarification question is, out of the 1% decline in reported EBITDA for 2019, can you maybe help us understand how much is that on an organic basis? Stripping out IFRS 16, M&A, FX, et cetera. That's first question. The second question was more on the polyamide outlook. You guys are expanding 11, Evonik is expanding PA12. Do you see any risk. Of course those are different, but can they be swapped from in application, can you swap from 11 - 12, and does that pose any threat in terms of pricing over the next two, three years in that market?
Okay, I will let Marie-José answer the first one, and I will answer the second one.
Regarding the EBITDA bridge, as I said, we don't disclose, in fact, EBITDA beyond, let's say, the three segments that are published. What is clearly fully documented is the impact of IFRS 16 in this year's numbers. We explained, in fact, this reclassification of rent or OPEX charges into a depreciation of assets represents a bit more than EUR 50 million for the year. What you observe is obviously a favorable impact in EBITDA and an increase in depreciation accordingly, and therefore almost zero effect on recurring EBIT. This is the information that is available. Let's say for the rest, that's why I gave you some color in terms of what's going on, in terms of contribution of EBITDA. EBITDA telling you basically specialties increased EUR 100 million plus and almost offset basically the decline in intermediate businesses, which declined more than EUR 100 million as well.
This basically is the qualitative information that we provide.
Thank you, Marie-José. For the PA12. First of all, on the PA12, as you know, Arkema is also an important player. I'm not the one who is going to say that PA12 is not a very good product, because it is a very good product and we are strong in this area. Once said that, Polyamide 11, because it is bio-sourced, because of this mechanical property, is absolutely unique. The more time goes, the more we are able to develop high value-added application, which cannot be met with PA12. I think really we have said that many times, it's one of the key strengths of Arkema. PA11, it's a fantastic product which will be supported uniquely by this ongoing demand of new materials. I think PA12 is one and PA11 is another one.
The more it goes, the more PA11 differentiates from PA12 and adds own field of application. We are not concerned by that.
Thank you.
You're welcome.
Thank you. We don't have any more questions for the moment. Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad. We don't have any more questions. Back to you for the conclusion.
Okay. I would like to thank you very much for your questions, which were very diverse. I propose, as usual, that our team follow up with you if you have complementary questions. We'll see you again in the short run because we'll start our road shows on Monday. Looking forward to see you again. Thank you very much.
Thank you, ladies and gentlemen. This concludes today's conference call. Thank you all for your participation. You may now disconnect your line.