Ladies and gentlemen, welcome to the Arkema's Full Year 2018 Results Conference Call. I will now hand over to Judy Leonard's CEO. Sir, please go ahead.
Thank you very much. Good morning, everyone. Welcome to Arkema 2018 Results Conference Call. With me today are Marie Jose Donsion, our CFO and also as usual, Investor Relations team. To support this conference call, we have posted on our website a set of slides, which include the highlights of the full year performance, the outlook for 2019 and detail of the progress we are making to achieve our long term ambition.
Together with Marie Jose, we propose us to comment this set of results. And then, as usual, to answer your question, As you have seen from the figures, which we are released this morning, Arkema achieved another excellent year with a record high EBITDA, of EUR 1474,000,000, which is up 6% again 2017, which was as you remember, already an excellent performance. Our adjusted net income for the year increased significantly up nearly 23%, which is quite high. We further progressed in a macroeconomic environment, which is marked as you know, by the strong volatility of raw material prices, but also of currencies in the first part of last year. Towards the end of last year, as you know, also this environment becomes more complex, notably on growing geopolitical tensions, we weighed on customers' confidence.
Despite these challenges, we believe we managed to deliver a quite solid end to the year with Q4 marking yet another quarter of EBITDA growth, even if modest, EBITDA growth for our company. This achievement clearly demonstrates our resilience in a different economic environment. 2018 result reflects we think the quality and the balance our portfolio of businesses, with a high share of specialty defensive businesses, delivering resilient growth and strong and global positions in more intermediate businesses, which enabled us to fully benefit from tight market conditions in certain of these lines, namely PMMA and Fluorogases. In specialties, Advanced Materials continued to deliver robust and steady growth with EBITDA up on 20 seventeen's excellent base and volume growth exceeding 5% this year. They benefited in particular from the ramp up of new units in PVDF in the U.
S. And China, also in molecular assist in France, in offshore, as well as our strong innovation momentum, with standard performances in bio based polyamide for consumer goods and Kain activities in batteries. We have paved the way for further exciting opportunities in the innovation field, firstly in composites where we signed a partnership with XL to develop light weight thermoplastic composite solution for the aerospace sector and set up a joint venture with Beverly for the oil and gas market. Another strong area of development and focus for us is 3 d printing. We opened mid-twenty 18, In the U.
S. In Exxon, close to Philadelphia, a dedicated excellent center, and we launched a dedicated commercial platform to combine our efforts and solution and better support our customers' growing needs in this demanding and innovative market. In Additive, higher raw material costs temporarily impacted the overall performance of this very downstream business, They, in fact, overshadowed the benefits from the integration of our recent bolt on acquisition, including XL brand in the U. S. Which deliver a strong performance well in line with our expectation, as well as the benefit from the synergy, which are being gradually implemented at Den Braven, in line with our plans.
To mitigate the impact of higher raw material costs, our teams have put a strong emphasis on pricing actions, which further accelerated in H2 and which enabled us to offset some of this impact. This way however, on our current volume growth in this area. If we look forward and if raw material remains stable, which we're seeing around current levels, We are confident we will further recoup this impact in 2019. Looking back at what we shift since we acquired Bostik early 2015, we managed to grow EBITDA by an average annual growth of 9% including scope effects. This highlights the progress already made there, but also the scope to further structurally increase margins in line with our 15% EBITDA margin target in the medium term.
Finally, this set of results reflect the strong and competitive position we have in intermediate product lines, which delivered overall this year another outstanding performance. MMA PMMA continued to benefit from tight market conditions, which, however, started as expected to normalize in the last few months of the year in line with our expectation. Fluorogases delivered also an excellent performance including Q4, ahead of our expectation and exceeding the higher reference base of 2017. While we do not expect to repeat such a performance this year in Fluorogases, we expect to continue to deliver strong results probably between 20172018 levels. Accrylics continued to gradually improve, especially in Asia, where demand was sustained.
In this environment, the pending acquisition of our partner stake in our acrylic production joint venture, Taixin Sonke Chemical in China, We really believe is a good opportunity to further increase our presence at a very competitive cost in this high gross market. Another point of satisfaction and proven strength of our group was a high cash generation with 1,000,000 free cash flow generated this year and a particularly good performance, as you saw in Q4. At 38%, the cash conversion rate was once again above our 35% target. Overall, net debt declined slightly to around EUR 1,000,000,000, which means that at the end of 2018, our net debt to EBITDA ratio was 0.7 times. Our financial flexibility therefore remains strong, notably to do bolt on M and A specialties.
Testament to the strength of our balance and the coordinates of our long term strategy, our credit rating and outlook were upgraded by the main agencies last year. So all in all, excellent set of results, highlighting the quality of portfolio of businesses and benefits of our transformation strategy, with well identified investment project and also a strong innovation drive to capture growth opportunities in higher gross market and regions. Referating these very good results and also our confidence in Arkema's long term prospect The Board of Directors, we propose to increase the dividend by close to 9% to per share, that we can compare to per share last year, which would mean that over the last 3 years, the average dividend increase is close to 10% per year, coming from a base of 1,192,015. Looking forward, our momentum of project is strong. And all the teams here at Tarkema are very much focused on executing our strategy and delivering our mid and long term ambition.
As you know, our goal over the coming years is to further increase the share of our more differentiated specialty businesses, which represent today around 70% of our total sales, coming from a number a long time ago of 40%. To that end, we are actively implementing a number of important, very exciting projects around the world, especially in Asia, both in Advanced Materials And Thiochemicals, which are 2 strong pillars of our future growth of specialty businesses. In adhesive, our M and A ambition remains intact. We have the flexibility for this. Last year, we continued to be active on that front with the bolt on acquisition of Afinitica, which represent the 1st step in our ambition to build a strong position in the highly attractive engineering and disease segment, end of nitta Gelatin industrial adhesive to strengthen our position in Japan.
We are confident that it's still segmented sector with many small and mid sized independent company, we can further grow this business and also improve its profitability in line with our long term ambition. Before concluding this initial remarks, I would like to remind you that a major player in the chemical industry, we want to deliver growth. It's clear, but deliver it responsibly. I am convinced that today's world faces, many challenges that the chemical industry could contribute to solve, especially through its innovation capability. From this standpoint, Artema with its 6 innovation platform, which are well aligned with United Nations Sustainable Development Goals, is very well positioned to participate in this development.
Our CSF framework is structured around 3 pillars And we are really and it's not only the top management, but all the employees committed to ambitious, long term, social, environmental and safety targets. We made further progress this year towards achieving this target and I can assure you that at Arkema at all our employees took this commitment very seriously. So in a nutshell, 2018 has been another excellent year, recording solid growth after already strong 2017. We delivered solid result in Q4, despite this environment, which was marked by macroeconomic and geopolitical volatility. Showing then the resilience of our business.
Whilst we benefit this year from the very strong performance of Fluorogases and PMA and tight market conditions, We are really convinced that our specialty business will take over in the coming years, delivering sustainable growth and further improving our mix of earnings. Finally, we made further progress in executing our strategy, implementing several major projects and we are well on track to deliver our long term ambition continuing to prolong the company, increasing the share of specialty defensive products and completing the rebalancing our geographic footprint. I will now hand it over to our CFO, Marie Jose, who will detail the 2018 financial performance.
Thank you, Tiffany, and good morning, everyone. So I'll start with some comments on the 4th quarter results. So you could see at 1,000,000,000, sales were almost 13% up year on year with a 7.7 price effect. Positive in all three divisions and 6.5 percent volume growth, driven notably by Coating Solutions. EBITDA was up on last year's high performance at 1,000,000, and the EBITDA margin was, however, impacted by the dilutive effect of price increases and by the mix of activities.
Let's start with High Performance Materials. So we achieved their robust performance with sales up 5.3 percent at constant scope and FX. EBITDA was close to last year's and, price increases were strong with a 3.9% growth impact. And contributed to partially offset higher raw material costs. In a context where the raw materials environment is now more table, we should continue to see the selective increase in prices, especially in the adhesives to recoup the remaining impact in the coming months.
Volumes were slightly up on last year's high comparison base. And on the full year, the performance was solid with an EBITDA up year on year, supported by innovation in Advanced Materials and an excellent contribution of specialty molecules. This led this was led in particular by high density of projects in 2018. And keep in mind that for this business, we will have in 2019, a very high base of comparison, especially in Q1. Moving to Industrial Specialties, we delivered another very strong quarter with EUR 140,000,000 EBITDA, but supported by a stronger than expected contributions programs as you could see and a solid performance in thiochemicals and hydrogen peroxide.
So all these elements contributed to more than offset the effects of normalizing market conditions in MMAP and MMS effects. On the full year, all four business lines contributed to the excellent results. Finally, on Coating Solutions, we posted an EBITDA of 4 1,000,000, stable versus last year. Volume momentum was strongest quarter, especially in Asia and North America. However, the division's performance continued to be impacted by higher input costs, especially in downstream businesses.
Despite the significant price increases they passed on. So EBITDA margin, both in the quarter and full year, reflect the dilutive impacts of higher selling prices. So moving on now to our full year 2018 numbers. Let's start with the P and L. But 1,000,000,000, sales were up 6% year on year, including an adverse currency effect of minus 2.8 percent, mainly due to the stronger euro versus dollar in the first half of the year.
And a positive scope effect corresponding to the integration of service and acquisitions. Organic growth was circa 8%, led notably by a strong 6.3% price effects, positive in all three divisions. Volumes were up 1.6%, driven by Advanced Materials And Coating Solutions, which offset actually the impact of lower volumes in Fluorogases. If we exclude Fluorogases, Arkema volumes grew 2.7% in 2018. EBITDA grew 6% to a record level of over 1,000,000,000.
At 16.7 percent, the margin was stable at a high level. And this margin levels are actually in line with our midterm targets. With depreciation and amortization stable versus last year, we have a EBIT, which reached over 1,000,000,000, up almost 9% on last year. And as a consequence, the, a rebate margin was also up 30 basis points to 11.6%. Non recurring charges amounted to EUR 63,000,000, mainly corresponding to restructuring charges and asset impairments.
On the financial results, we were closed to last year, just over EUR 100,000,000. On one hand, we benefited from the 1,000,000 savings following the debt refinancing performed in 2017. And on the other hand, we've got higher interest rates on our U. S. Dollar debt which represents around 30 percent of our gross debt.
Taxes stood at 1,000,000 significantly down on last year. They included a 1,000,000 euro 1 off noncash profit resulting from the recognition of deferred tax assets in France. So excluding exceptional items, actually the tax rate came in at 19% of our rebates, significantly down on last year due to the positive impact of the U. S. Tax reform, and to the geographical split of our results.
For 2019, I'd say we anticipate a tax rate around 21% of our rebates. So eventually, 2018 adjusted net income was up 22% on last year at 1,000,000. A few comments now on cash flow and net debt. So as mentioned by Thierry, we generated around EUR 500,000,000 of free cash flow, which very strong performance despite organic growth investments accelerating this year. This reflects actually the higher EBITDA contribution lower taxes and the tight control over working capital.
Recurring CapEx came in at EUR 500,000,000, representing 5.7% of our sales, which is consistent with our guidance. And exceptional CapEx of EUR 61,000,000 reflect the progress of our biochemical expansion in Malaysia as well as the initial steps undertaken for the expansion of our specialty palmarides in Asia. For 2019, given the expected ramp up of these investments, the sum of recurring and exceptional CapEx should be around 1,000,000 in total. At 13.4% sales, actually working capital was close to our historical low of last year, and still well below the 2016 level, which was at 14.5 So this was another strong achievement of the year for Arkema. Finally, EBITDA to cash conversion rate was 38%.
And then that decreased slightly to around 1,000,000,000, including a million spent on acquisition during the year. So, this concludes my presentations and I now end it over to Pierre.
Thank you, Marie Jose. So with regard to the outlook, as you know, Current economic environment remains complex. Our prices are volatile and the world is still facing some geopolitical tensions. This continues to weigh on customer demand at the start of the year as we have seen certain fuel end markets, such as automotive, in Asia or consumer electronics. In this context, we will, as usual, focus on the our strategy or main action, which means what we control, namely our internal momentum and the execution of this Long term strategy.
Our priorities for 2019 are very clear. We'll continue to roll out our industrial projects you know that we have several start ups, which are expected this year in Advanced Materials, China, France, UF, and also we have acrylics expansion in the U. S. They will all contribute to our growth, especially in the 2nd part of the year. In HDV, we'll continue to implement the synergies and finalize integration of the recently acquired businesses.
We expect to benefit in this business from a more stable environment in raw material. And finally, we continue our initiative as part of our operational excellence program as well as our proactive action to raise prices selectively. So taking into account this different driver, we aim rate our resilience in this more complex environment and to consolidate our performance at current high levels. The seasonal split this year will probably be different from last year. We expect Q1 EBITDA to be slightly below 1Q 2018 high comparison base taking into account last year, excellent contribution of specialty molecular sieves and MMAP MMA.
And momentum is expected to improve throughout the year. Driven by the further development of specialty businesses, enhancing the group's profile, and we aim to achieve in 2019 and EBITDA comparable to 2018 record level, and this would be really another excellent performance. So I thank you very much for your attention. And we are now together with Marie Jose, ready to answer your questions. Thank you.
And we have a first question from Martin Riddiger
Thank you very much. This is Martin Roediger from Kepler Cheuvreux. I have three questions. First, on Fluorogases. In Q4, you said that the contribution was better than expected.
And obviously very strong volume growth also driven by Fluorogases. Normally, Q4 is an off season business for Fluorogases However, I calculated Fluorogases sales in Q4 was even better than the peak season, which is Q2. Can you explain what happened here and what makes you confident that Fluorogases in 2019 will be between the level of 2017 2018. The second question is on the tax rate. Thanks very much for the explanation about the underlying tax rate of 19% compared to REBIT in 2018 and your guidance for tax rate in 2019 to be 21% of REBIT?
Can you help me to understand, why the tax rate is rising? And, eventually, that is because of the base erosion and anti abuse tax in the U. S? And what do you expect? Is there also a further increase in tax rate to expect after 2019 because of that tax in the U.
S? And then finally, on the others in corporate line within the segment reporting, it seems that the EBITDA in the corporate line was -22,000,000 Q4, which is a rather low number of Q4 reporting. And in the Can you explain the reasons behind and any hint what you expect for the corporate line contribution in 2019? Thank you.
Okay. I will finish. I will start with the last one. I will go from the last one to the first one. So I will start with the corporate plan, which is quite easy, tax rate and Fluorogas.
So on the corporate line, first of all, I think, as you know, every year, we are a bit 3.80 and a divided by 4. 22 has not seen a special. We had, as you know, paid in the Q4, what we call the pre macro, okay, to employees, which was very special in France, which is part of this slight increase in corporate, but all in all, it's completely under control. And, it's nothing special if you speak to a year by 4, you're close to the level of Q4, but you could argue that there specific element of primmacro, which is a specific bonus, which has been given in France by many, by many companies in particularly, favorable tax conditions. For the tax rate, Marie Jose,
Yes. So in fact, as I explained, the significant decrease in 2018 financial year comes really from the decrease in taxation in the U. S. Then basically you've got a mix of geographies, which contribute to the to the overall, tax rates. So this is basically the only reason for, let's say, the guidance are 21%.
No major, no major change, let's say, country by country in itself?
With regard to Fluorogases, we got a usual, quite every quarter, many questions. And what is always good is that depending on the analyst, we have different opinion on Fluorogases. So we try to answer all questions, but overall, what I would like to state is that We have confirmed, as we said, many times that 2018 would be quite a good year for Arkema. We recognize not only Q4, but for the year above expectation and you remember that we said that 2017 was really for us a high reference point, but would be a reference point for the coming years. We did better in 2018.
So first, we delivered 2017 as planned. And I think it was really a good news for everyone. Then 2018, was even better. And as you know, we are completely transparent to you. And we said don't come from this high level.
Forever, I say 'seventeen is more a reference point. And we believe that for 'nineteen, which would be between 'seventeen 'eighteen, which I think would be quite a good level. So why is Q4 so good? First, because, you know, Fluorogases is made of different products for different with legislation. So, you have never the same pattern every year, never the same pattern every quarter.
I think our team are very active. They have done a very good job in the Q4, but we believe and we recognize that some of action, maybe not repeatable in 2019. This is why we took this fair function say that on Fluorogases will be between 'seventeen and 'eighteen, which would be an excellent level. And I think that's quite good. And this shows the relatively good resilience of Fluorogases at a high level, which is what you expect as shareholders.
Can you explain the actions you have done?
I will not develop openly, to share with the competitors all the action we do on the market. I think you've got a clear answer. The figures have speaking for ourselves. There have been many questions with regard to surrogas already in 2016 2017, our ability to maintain this kind of level. We did better in 2018.
So I think the figure of speaking, but as we do in other business lines. We don't disclose openly to everyone or the exchange we are doing on the market. You can understand why.
Thank you.
So we have another question from Alex Stewart from Barclays. Please go ahead.
Firstly, on the Coating Solutions business. I calculate the volumes in your Upstream business must have been up very, very strongly. Why did you have such good volume growth in acrylic monomers and acids in Q4, particularly given that slightly shaky economic environment perhaps there was a contribution from the Stincage Joint Venture, for example. And secondly, in Fluorogases, did you have any either revenue and or EBITDA contribution or equity for distribution agreement with Chemours? And was there any pre buying of Fluorogases particularly R22 into the tariffs increases in 2019?
And then finally, sorry, just quite a few questions. Finally, what euro dollar rate you assume in your guidance for 2019?
So last question is 115 on the acrylic monomer. It's true that we have good volume. I think China has been better than maybe we would have So especially after all the questions, people were asking about China. But overall, we have good volume. We have done a very good job into Global Care Health Management and, with some very good results, for example, in fracking, with also development of, what is good to, to developers, what our treatment is going fine.
So it has been quite a good quite a good Q4 compared to usual, for all Q4, but from every quarter is difficult to have exactly the same pattern. The seasonality can vary from year to year, but it was quite good. What has happened is that we had also a significant increase in propylenum, which has weighed on, on the onstream margin. This is why, in the margin percentage, little bit disappointing when you saw the growth, but it says really it's a popular effect. Also we have also destock because since we see such a volatility in the raw material pattern, we prefer to be cautious in stock and we have it had some impact in EBITDA that you see in the margin.
And on the volume again, don't forget that, in December, in 20 17, we are the we had a big turnaround. This is why we are a little bit cautious in our guidance for acrylic in the first part in in the first quarter. We had a turnaround in December, so it was 2017. So when you compare December to say, well, 4, 2018 versus 2017, you have also gap there or an increase there. But all in all, there are non specific elements.
It's an addition of different elements, and it's better to have good volumes and bad volumes. So very unhappy about the volumes. With regard to Fluorogases, I'm not sure to understand your element below the line we came off, but there was no element below the ring, which came off, whatever. But I'm not sure to understand exactly the question and no pre buy of R-twenty two is the
Perfect. Sorry, my question about AP40 distribution agreement within which you announced at the end of last year. I wondered whether that agreement has come into effect already?
Ah, okay. Number, because you mentioned below EBITDA or whatever, so I was not sure
the local contribution of the agreement to the
No, it was not, if your question is, was sort of this agreement significantly in Q4, which would explain what Fluorogas is so good as the answer is no.
Okay. Okay. Thank you very much.
You're welcome.
So we have another question from Patrick Lambert from MainFirst. Please have.
Hello, Patrick. You are there? We don't hear you anymore.
Patrick is no more here. Sorry. And so So we have Georgina Iwamoto from Goldman Sachs now. You can ask your question.
Hi, Terry. Hi, Marie Jose. Thank you for taking my questions. I think one more on Fluorogases, if that's okay, which is can you give us an update on any developments in 1234 YF? And as 2020 is fast approaching, do you think that you will have any kind of route to participate in the automotive market refrigeration the regulation changes.
And then just a bit more generally thinking about 2019 versus 2018. I know there were headwinds from raw materials and FX in 2018, but I think it is somewhat surprising to see such good pricing I'm not dropping through to the margin across the group. So as you look to 2019 where it's probably a more limited volume growth environment and probably difficult to do better than you did in 2018 on pricing. How do you think about the margin development for the group going into next year?
So on the Heroin Flushing out, so on the cross 44 YF, no news otherwise we would have communicated. So we are still This file is still being discussed at the level of the European Commission, but we have no more news otherwise it could have been by definition, official, all this process is completely transparent. With regard to the pricing, In fact, yes, we had a good pricing power, but the level of raw material increase for the downstream. And on the supply shed, how long it takes to go from, the upstream down to the downstream. So we suffered up until the end of last year, even if raw materials and raw materials started to decrease This is what you see yourself.
In fact, up until the end of last year, when you go, for example, to a daily, we have still some negative effect from raw material, So we had good pricing, but it was impossible to offset. And we are not, you have seen that in the other kind of a specialty or formulation chemical line. You see exactly the same. So we are not different. We have done a good job, but raw material increase over a period of 18 months has been spectacular.
We did a part of the job, and we have still some to do in 2019. We know that the we believe the context will be more easy because first, the comp will be more favorable. And secondly, We believe that now we see a stability in raw material, if not some decrease. So we should, step by step recoup the margin we have lost in the past 2 years, for example, in the adhesives and in the acrylic downstream. So this is one of the element which is factored when we say that in 2019 compared to 2018, yes, we should have some normalization in the more intermediate product line.
But with regard to specialties, we should have, especially in the 2nd part of the year, a growing momentum.
And so the kind of net impact is kind of neutral to the margin? Or do you think it can actually improve because the specialties is where the improvement is coming from this year?
No, as I mentioned, we believe that in specialty, so I've been on Bostik and on acrylic down stream, we should be able to increase a percentage of margin of the acrylic downstream and proceed because of this momentum continuing pricing increase and more stability given a slight decrease of raw material. This is what we believe. Okay.
Thank you. And then just final clarification on Fluorogases. So with 12 months to go, Arkema can't serve the automotive refrigeration market at this point. Is that right?
On the new model? Yes, on the new model here, but it has already happened. It's not seeing a new and it is in Europe. It's not in the world. In the world, the situation is, different.
And it's not in our 2020 target. As you know, so nothing is different from what we told you when you all go to years ago, 3 years ago. I mean, I your question is fair, but you know, the answer since now, more than a couple of years. This part is completely factored. And as we mentioned many times, our strategy in Fluorogas is completely diversified.
And we had already this impact in 2018, and you got the answer in our figures of Fluorogas in 2018, which has been excellent. So I hope you appreciated that.
So we have a question from Patrick Lambert from MainFirst. Please go ahead.
Can you hear me this time?
I can hear you.
Good morning, everybody. Thank you for taking a few questions. The first one is Thanks for bridging Industrial Specialties EBITDA, at least in terms of Fluorogases could you do the same with PMMA, your outlook on the impact of normalization for the full 2019? And also on the on the cutting side, the synergy contribution expected contribution, the increase of capacity there. That's for the bridge of EBITDA.
Second question is regards to the margins of HPM in Q4. I think you mentioned a voluntary inventory management. Could you help us a bit on what you did exactly in which product lines and the impact you think it had on margins in, in Q4. And also the, again, a bit of granularity on adhesives margin versus the rest if you can. Thank you.
So with regard on quickly question. As you know, we don't give a line by line, especially with regards to the guidance and nobody does it in detail. But clearly, what we believe is that you have, in fact, intermediates and I'd like to spend not only time on intermediates in the call, but I will answer your question. Because they represent only 30% of the company. But if I look, what the way we see it in, in 2 2019, which is completely consistent with our guidance is that we have acrylic momentum, which will continue to increase gradually gradually growth of profitability.
And then on the other side, you have MMAPMMA with normalization on three quarters because we had only 1 quarter of normalization and you have Fluorogas. So I would say that acrylics would offset, let's say, to say something MMA, PMMA, okay, and then you have, you have the fuel gas, which explains that we believe in in 2019. On the intermediate, we'll gain some level of normalization, but on the other side, you will get a slight increase on a far bigger sales level, which is in a specialties. From a qualitative standpoint, at this time of the year, this is what I can tell you with regard to the margin of I think we did quite a good job for the year in terms of margin management for Advanced Materials. Bostik has more suffered because it's more downstream, but you can also see exactly the same phenomena for the paint manufacturers and because the increase, as I mentioned, to Georgina so big that you cannot offset just in the year.
So margin has been impacted. Basically, Bostik has lost a bit more than a point of margin year on year. And if we take also the year 2017, you could add a little bit. So we have more or less 1.5 points to recoup in margin for Bostik and this is certainly, we will try to do, as much as we'll try to offset as much out of this gap already in 2019. This is clear priority for Bostik Again, it has been quite a solid business, also with, input from acquisition, but we recognize that we have lost, similar to what we have seen point manufacturers, like a point of margin, a little bit more including the year before, but we plan to recoup most of it this year.
So for us, it's an upside for 'nineteen.
Yes, we have another question from Mubasher Chaudhry. Please go ahead.
Hi, thank you for taking my questions. Just two please. On Boston, just some color around how the conversations are coming along from the bolt on perspective and how are you seeing the landscape from say valuation and then availability of acquisitions. That's one. And the second one is around acrylics overall.
When you look at the spine demand and the dynamics there, what do you see or the utilization rates for the industry in 20 nineteen and maybe even into 2020?
To talk to you. So with regard to the acquisition, first of all, the good news is that our financial power is intact to make acquisition Maybe it has not been mentioned enough, but our cash generation has been fantastic in 2018. Our level of debt is less than 0.7 times EBITDA. You know that we target mid long term to be below 2 times, so which means that we have while remaining very reasonable. We have financial flexibility, not only for acquisition in ADESA because we target also advanced material and acrylic downstream.
But clearly, we want to continue to move. Because we have the financial flexibility, as it means that and you have seen that in 2018, we need to make lead moves every year. We try to be reasonable cautious enough not to overpaid and to make acquisition, which really are value creative. And this is what we have done in the past. Now with regard to adhesives, clearly, we'll continue our bolt on acquisition.
We have a big pipeline but it doesn't mean that we will make a significant acquisition. It's just that we have many contacts all over the world. It's clear that in the landscape of today, it's easier to make small bolt on acquisitions to make big need to big size company, but I think, we are scrutinizing the whole market. There is room for acquisition the landscape evaluation, not only for adhesive, but for Advanced Materials, as you know, it's higher than it was a few years ago. Because you have a lot of money in the market and also because the rate, interest rates are low, but I think we have what we need to in order to continue to grow by acquisition.
We have no worry on that and we have enough targets. On acrylics, on the utilization rate, I would say in the U S. Is, is good. It's been good level of tightness, tightness. Europe is more balanced, I would say, but it's solid.
China is still a little bit challenging, as you know, but it's, with the level of demand increase in China and Coming back to the question before we saw that even in the last quarter of 2018, we believe that demand will continue to grow And even if supply grew a little bit, the balance should continue to improve in the coming years. Overall, for the adhesive altogether, we are roughly a mid cycle for 2018, and we should continue to improve in 2019.
So we have another question from Laurent Favreaux from Exane. Please go ahead.
Good morning. Three questions, please. 2 quick ones, to start with, on Atisys, on raw materials. Could you give us a bit of color what you're seeing on the raw materials that we cannot track externally. So we have the view on silicones and VAM and you refrain, I'm wondering what's happening on the rest of, of the cost pile.
2nd question on pricing, can you remind us how much of bostik and generally atthesives, how much of it works on an annual pricing cycle, I. E. How much of your business you haven't been able to reprice since Q1 last year? That's the second question. And the third one on acquisitions, I guess, you've just mentioned that you're still looking at bolt ons.
I mean, we've seen Parex recently BSF is going through this round on Construction Chemicals. And GCP apparently is looking at strategic options, with every option on the table. So I'm wondering, are you ruling out those very significant potential acquisitions? Are you really only sticking to bolt ons? Thank you.
Thank you, Laurent. So with regard to raw material, I think I can see that you have studied it well. Clearly silicon of after a significant increase of decrease, vermouth decrease. We see some resin which decreased. But I would say that most of the other raw material, you are not naming are stable.
Okay, this means that you have named the big decrease. I don't know if you mentioned polyurethane, which is one or 2. You have also some clarifying resin, which decreased. For the rest, it's more stable. But I would say what we needed is not so much decrease except with silicon, the silicon, which is mostly in sealants.
Pricing are following more or less, so it's more, but for the rest, clearly, I would say that what we were expecting, which is coming now, it's more stability in order to benefit from all the work we have done and we continue to do on pricing because for 18 months, we have been trying to catch up and, but we were late this time because raw material, we continue to increase We are not anymore in this context, so I think it will be good for our decision to recoup our margin, and we start to see that in the Q1. On what you call the annual cycle, as we there some part if I understand well about Bostik on which we have not passed price increase, they were up until Q4. I would say that for Q1, we would have closed, closed the loop and we would have, past price increase there is a risk from a few exceptions, but overall for the big majority, everywhere in the Bostik portfolio, but we need the Q1 again. I hope it answers your question. On the adhesives, so when we say adhesives, sealants, mortars, associated products, it can cover a lot.
So in a disease or you can go in many fields and you have to be selected. I would say that we don't disclose any significant increase, but I would consider the level of Dan Bravern, which was half a 1,000,000,000 in terms of enterprise value, of course, 1,000,000,000 would be for us a sort of big. So below what the one you are naming, okay. And the majority of what we will be doing will be more bolt on acquisition, which means between 20, 30, 40, 100, 100 than above, but we don't disclose more significant. It really, it makes sense.
Once you have said that, We are more a company which is targeting sealants, adhesives, grew than, to be a big motor player. If you see what I mean.
So we have another question from Martin Evans from HSBC. Go ahead, sir. Yes, thanks. Morning. It's a question on your Slide 5 transformation on track where you, you say that 70% of the group's sales by division are now specialties?
And I guess it's a simple question in terms of definition or what you understand by that because on the surface looking down at Coating Solutions and even HPM, 16% EBITDA, those sorts of returns are by no means, what traditionalists would regard as specialty. So therefore, you've moved, which were entitled to do for the purposes of this chart moved some of your divisions into this specialty grouping. But could you just maybe clarify what your definition of specialty is either in terms of an EBITDA margin or return on invested capital. And again, just clarify exactly which divisions within your portfolio within the 70% now you would regard as specialty?
Okay. So first of all, if we ask everybody following this call and all our competitors, what are the definition of specialty everybody will come from with a different definition. We are mentioning HPM margin. You know that HPM is mix of Advanced Materials, which is around 20%, which is clearly specialties and Bostik, which is more in the range of 12, 13%. And but which is also clearly specialties.
So the mix, the average you took is not is not so relevant. It's really the 2 businesses, Advanced Materials And Bostik, and then Bostik as would be a paint company. And you have some European references, even with this kind of margin typically, especially for us. So two answer to your question, clearly, and I think that's been clear, for everyone. After that, you can have beyond definition.
Everybody can have his definition, but we are completely, I would say, committed to our own definition. Intermediates is MMA PMMF. We're all there. And, fuel gas and acrylic acid. So the upstream of the coating solution.
So this is intermediate and the rest is specialties. What do we define overall in the specialties without looking at everything in detail is really resilient driven by innovation and R&D, steadily growing pricing power. So it's basically what we are what we are looking for. And I believe that, what we define as specialty, and it's, if we look at 5 years, 6 years, 10 years, what we have built with this business portfolio, it has really, a better idea of specialty businesses. If we compare to the definition we have from peers, so also, after that, you could take a luxury goods or whatever.
I think we are pretty much consistent. It's not more strict than what we see in our industry.
So we have another question from Chetan Udeshi from JPMorgan. Please go ahead.
Yes, thanks. Just one question on the contribution from new projects and expansions. Can you give me can you give us some sort of a sense of how much EBITDA contribution do you see from all the new projects that come online, primarily in second half in twenty nineteen? And the second question is, just around the industrial specialty piece, overall, if I look at the EBITDA in this business, grown from $470,000,000 in 2016 to now in 2018, $675,000,000. So it's almost $200,000,000 increase.
Now we've all debated about the MMAP MMA normalization for a while. Probably seems to be happening now. Fluorogases like you said, it's probably going to decline from high basis. So how should we think about where is the new sort of EBITDA for that business, compared to what we've seen in the past 2 years. So are we going back to 2017 2016 levels?
Or do you still think we end up closer to what we have in sort of 2018, but probably lower, but not too much lower than 2018?
Okay. Good question. So with regard to the new project, we don't give year by year or what, maybe we answer a different question, but I think it would be useful for everyone who is, because we had the question in recent times, which was, you know, this space where we put all our development projects, including the one for 2019, but also the one which are midterm. We have, for all this project, around 1,000,000 of CapEx for the next 3, 4 years. And typically, in Arkema, at Arkema, we'll give you a lot of information at Arkema, when we take an organic project, to understand the EBITDA generated by the project for Organica, So organic CapEx, you divide by between 3.5to4.5 times.
This means that, to say something, project of EUR 100,000,000 of CapEx to understand which EBITDA would generate once it has fully ramp up. You divide by 3.5to4.5. Okay. So with that, it gives you a clue, and it's nearly every year, like, like this. On a yes, industrial specialty, I think we have done a good job, which has not been necessarily recognized by the market this year, and we have seen that.
We, and the 17 performance was fantastic from industrial specialties. And at the end of the day, we had most question of consenting to us. No, we would prefer our specialties to go quicker and we don't take into account your growth in the short specialty. So if we start to go a little bit better, a bit lower. Everybody should be happy for the same reason.
So no, I think that with regard to our intermediates, I would say, business, because in industrial specialty, you have thiochemicals, for example, which is a specialty business, If I take our intermediate business, again, we think that you have actually, we are still for the coming years potential for increase. So we are more close to the mid cycle than upper cycle. You have MMAPMMA no surprise. We were the first one to say I started to normalize and we continue to more normalize. So you have 3 quarters.
And, Fluorogas should be should be between 2017 2018. If you take it all together, you make your own estimate, you will see that we will be below last year, but reasonably below last year. And looking at our guidance for the full company, including, specialties to be comparable to last year, This means that industrial intermediate has to be reasonably below last year. So all in all, it will stay at quite an excellent level. But not as strong as 2019 and certainly, above the 2017.
So we have another question from Alex Stewart from Barclays.
Hi, very quick question. Sorry. Your $700,000,000 hybrid, I think, is first callable in maybe October 2020. You thought about refinancing that or paying it off altogether to save you the high coupon?
Of the hybrid? Yes. The hybrid is expected to mature, so end of 2020. So, as we are described previously, we consider it as a good instrument to have in the portfolio of of financing in the company. So we'll be looking of course into the market for the right timing to maintain this instrument into our portfolio financing.
Yes.
So is it possible to refinance early?
Everything's possible, of course.
It has to make sense. So I think there is a we all plan to do everything which would be good for the company. But after that, it has to make sense. And So, Tony, to do it early, discussing money. So, I think we are not we don't believe we have to be in a hurry of what any decision.
Other questions for HP? Or?
Yes. We have another question from Pat Camber from MainFirst. Please go ahead.
Thanks. A follow-up question. For Marie Jose, I guess the the what's left on the tax assets to be realized over the next few years and the timing of that? Question number 1. And question number 2, you've been pretty active in 3 d printing the past few years.
Could you, quantify a bit. I know it should be pretty small, but in terms of growth rate applications where you see that developing pretty well. You're participating in a lot of platforms, a bit of color on the the pathway for 3 d printing? Thank you.
So on the, on 3 d printing, Patri clearly is one of the first platforms for Arkema as the same level as batteries or lightweight tool, lightweighting or bio source. The growth of the market is exponential. So what it is exactly difficult to know, but it will grow easily 20%, 30% every year. We have a big range for that. I think we are, in the chemical sector, one of the company, which is at the forefront of this, of this development.
Will it be huge? It's difficult to say today, but I think it's potentially can be a blockbuster for Arkema. As composite as all light weighting as bio source, but it's impossible to give you any any clear targets, but clearly, we believe we have something there.
Is there any technology that stands out? I mean, liquid, solid,
You have many different technologies, you have also filament, you have powder, you have really plenty of different technology, which one liquid, certainly, and you recurring, which one is going to prevail? I think they will all, they will all prevail. It depends really what you want to make. At the end, what is clear is that, we are shifting from the world where it was mostly for prototyping to will be really part of the manufacturing processes. So a really big company will use in their manufacturing process printers.
And it's very, very exciting.
Regarding tax, I can maybe comment. We are in a net deferred tax liability, yet we have recognized this year deferred tax assets in France. We actually have quite a number of historical losses that we generated in France, which are clearly not today. Totally activated in the balance sheet. So in reality, frankly, there is no risk of consumption of the asset that we have, at this point, there is more let's say, a potential opportunity to increase further that asset in the future.
The amount that take is basically roughly 1,000,000,000 losses accumulated over the past 10 years. So you applied the French rate to it and you get basically the amount of potential tax savings.
Thank you, Marie Jose. Before we close, but maybe we can take the last question, but just before this last question, maybe to summary a few points because it good summary of following your different question. First, and is directly following Maggio's point, we are really very glad to finish, maybe it has not been emphasized enough, very glad to finish the year. With such a strong balance sheet and cash generation. I think we start 2019 with a company, which is in a very, very good shape.
And we have released, even if we will not overuse them, we have really the financial flexibility to execute our long term strategy. And at the end, the value of Arkema will come mostly from our ability to deliver this, long term strategy. Secondly, dividend, we have not mentioned too much in your question. So I assume it was in line with what you were expecting, but this dividend policy, which is, at the same time, reasonable growing as a complement of transformation, story is really an element of visibility and a sign of confidence in what the company will deliver in 2019 and in the following years. After that, for 2019, clearly, we have had and I see your question.
We have had momentum in 2017. 18 where we have been really very, very strong in, more intermediate project line. But we should not underestimate the fact that the specialty business has done quite well, quite robust, quite solid, but they were a little bit math this performance by the fact that intermediate business where maybe from your standpoint, sometimes too good. In 2019, our message is to say that this specialty business will continue to play through their role and continue to grow steadily at a quite good level, good margin. You have just to split between what is Bostik kind of profitability and Advanced Materials, but for I trust on you for that, but really we'll continue to play fully the role.
And intermediate businesses, certainly will will be a bit lower, but quite reasonably, but we'll stay quiet. We are confident on that. Quite good. And you see our first record on the more intermediate business in the past year on which we had a few questions think we are really deliver and we'll continue to deliver on that. Now if we look at the total, as we say, 2019 will be comparable to 2018.
This means that you will have 2 different dynamics, one on the offsetting each other, one on industrial specialty, a bit lower. And one on the sorry, intermediates a bit lower and one on specialties, which will continue to grow I think at the end, this is good for the portfolio and the profile of the company. So I think our share on our base should appreciate that, which is fully aligned with the strategy of the company, which is really to continue to reinforce specialty base of the company to go to the long term goal, which is 80%. For that, there will be organic growth, but also we plan to cut new, to look at potential acquisition. And hopefully 2019 will be another year of bolt on acquisition.
This is what I wanted to say. Maybe a last question to close and we'll finish for today.
Yes, we have from Georgina Iwamoto from Goldman Sachs. Please go ahead.
Can you help us with how you think about the word comparable? Is it comparable higher or lower? And maybe if you can build a kind of range around it, just from what you've been seeing on the call so it sounds maybe like it's a bit more comparable lower for the guidance for 2019? Thanks.
I think you speak English better than I do, but I think comparable means similar. I think the guidance is quite clear. I think you have everything which is clear. We are not going to transform at the last question Sorry for that. This qualitative guidance, which we give at the end of the year, which is, makes you and us confident about the quality of the year.
To a quantitative guidance, which we have never given so early in the year that we give typically, as you know, during summer. So we do this year, as we have been doing in the past 13 years, and I think it's reasonable to do that. And I don't think you expect more than us. It would not be fair to do that to you. So I think we are confident on the year.
We'll give you a lot of qualitative elements. I think it's a guidance which should give you a confidence that hopefully Georgina, you will take it as such.
Thank you very much, Shelly.
Okay.
Okay. I would like to really thank you for your time and all your very interesting question. And as you know, we'll see most of you in shows and the team anyway in the meantime is really the IRAP team is really for your disposal. If you have any further questions, you want to have some more details. Thank you again.
Bye bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.