Ladies and gentlemen, welcome to the Arkema's Full Year 2018 Results Conference Call. I will now hand over to Thierry Le Hénaff, CEO. Sir, please go ahead.
Thank you very much. Good morning, everyone. Welcome to Arkema's 2018 Results Conference Call. With me today are Marie-José 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 on the progress we are making to achieve our long-term ambition. Together with Marie-José, we propose first to comment this set of results and then, as usual, to answer your question. As you have seen from the figures, which were released this morning, Arkema achieved another excellent year with a record high EBITDA of EUR 1,474 million, which is up 6% against 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 progress in the 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 of 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 enable us to fully benefit from tight market conditions in certain of these lines, namely PMMA and fluorogases. In specialties, Advanced Materials continued to deliver a robust and steady growth with EBITDA up on 2017'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 sieves in France, in Honfleur, as well as their strong innovation momentum with standout performances in bio-based polyamide for consumer goods and Kynar PVDF in batteries.
We have paved the way for further exciting opportunities in the innovation field, firstly in composites, where we signed a partnership with Hexcel to develop lightweight thermoplastic composite solutions for the aerospace sector and set up a joint venture with Barrday for the oil and gas market. Another strong area of development and focus for us is 3D printing. We opened mid-2018 in the U.S. in Exton, close to Philadelphia, a dedicated excellence 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 adhesive, higher raw material costs temporarily impacted the overall performance of this very downstream business.
They, in fact, overshadow the benefits from the integration of our recent bolt-on acquisition, including XL Brands in the U.S., which delivered 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 weigh, however, on our current volume growth in this area. If we look forward and if raw material remains stable, which we think around current levels, we are confident we will further recoup this impact in 2019.
Looking back at what we achieved 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. 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 2017 and 2018 levels. Acrylics 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, Taixing Sunke Chemicals in China, we really believe is a good opportunity to further increase our presence at a very competitive cost in this high-growth market. Another point of satisfaction and proven strength of our group was a high cash generation, with EUR 500 million 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 billion, 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&A Specialties. Testament to the strength of our balance sheet and the pertinence of our long-term strategy, our credit rating and outlook were upgraded by the main agencies last year. 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 growth market and regions. Reflecting these very good results and also our confidence in Arkema's long-term prospect, the board of directors will propose to increase the dividend by close to 9% to EUR 2.50 per share, that we can compare to EUR 2.30 per share last year.
Which would mean that over the last three years, the average dividend increase is close to 10% per year, coming from a base of EUR 1.19 2015. Looking forward, our momentum of project is strong, and all the teams here at Arkema 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 defensive 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 bio chemicals, which are two strong pillars of our future growth of specialty businesses. In adhesive, our M&A mission 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 a first step in our ambition to build a strong position in the highly attractive engineering adhesive segment and of Nitta-Gelatin's industrial adhesives business to strengthen our position in Japan. We are confident that in still fragmented 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 these initial remarks, I would like to remind you that as 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, Arkema, with its six innovation platform, which are well-aligned with United Nations Sustainable Development Goals, is very well-positioned to participate in this development. Our CSR framework is structured around three 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 toward achieving this target, and I can assure you that at Arkema, all our employees took this commitment very seriously. In a nutshell, 2018 has been another excellent year, recording solid growth after an already strong 2017. We deliver solid result in Q4, despite this environment, which was marked by macroeconomic and geopolitical volatilities, showing then the resilience of our business.
Whilst we benefit this year from the very strong performance of Fluorogases and PMMA on 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 transform the company, increasing the share of specialty defensive products, and completing the rebalancing of geographic footprint. I will now hand it over to our CFO, Marie-José, who will detail the 2018 financial performance.
Thank you, Thierry, and good morning, everyone. I'll start with some comments on the fourth quarter results. As you could see, at EUR 2.2 billion, sales were almost 13% up year-on-year, with a 7.7% price effect, positive in all three divisions and a 6.5% volume growth, driven notably by Coating Solutions. EBITDA was up on last year's high performance at EUR 287 million. 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. We achieved there a robust performance with sales up 5.3% at constant scope and FX. EBITDA was close to last year's, and price increases were strong with a 3.9% growth impact, contributed to partially offset higher raw material costs.
In a context where the raw materials environment is now more stable, we should continue to see these 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. 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 molecular sieves. This was led in particular by high density of project in 2018. 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 million EBITDA, supported by a stronger than expected contribution from Fluorogases, as you could see, and a solid performance in biochemicals and hydrogen peroxide.
All these elements contributed to more than offset the effects of normalizing market conditions in MMA/PMMA effect. On the full year, all four business lines contributed to the excellent results. Finally, on Coating Solutions, we posted an EBITDA of EUR 44 million, stable versus last year. Volume momentum was strong this 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 significant price increases they passed on. EBITDA margin, both in the quarter and full year, reflect the dilutive impact of higher selling prices. Moving on now to our full year 2018 numbers. Let's start with the P&L.
At EUR 8.8 billion, sales were up 6% year-over-year, including an adverse currency effect of -2.8%, mainly due to the stronger euro versus U.S. dollar in the first half of the year, and a positive scope effect corresponding to the integration of services and acquisitions. Organic growth was circa 8%, led notably by a strong 6.3% price effect, 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 at 2.7% in 2018. EBITDA grew 6% to a record level of over EUR 1.47 billion. At 16.7%, the margin was stable at a high level, and these margin levels are actually in line with our mid-term targets.
With depreciation and amortization stable versus last year, we have a REBIT, which reached over EUR 1 billion, up almost 9% on last year. As a consequence, the REBIT margin was also up 30 basis points to 11.6%. Non-recurring charges amounted to EUR 63 million, mainly corresponding to restructuring charges and asset impairments. On the financial results, we were close to last year, just over EUR 100 million. On one hand, we benefited from the EUR 30 million savings following the debt refinancing performed in 2017. On the other hand, we got higher interest rates on our U.S. dollar debt, which represents around 30% of our gross debt. Taxes stood at EUR 114 million, significantly down on last year. They included a EUR 59 million one-off non-cash profit resulting from the recognition of deferred tax assets in France.
Excluding exceptional items, actually the tax rate came in at 19% of our REBIT, 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 REBIT. Eventually, 2018 adjusted net income was up 22% on last year at EUR 725 million. A few comments now on cash flow and net debt. As mentioned by Thierry, we generated around EUR 500 million of free cash flow, which is a 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 million, representing 5.7% of our sales, it's consistent with our guidance.
Exceptional CapEx of EUR 61 million reflect the progress of our biochemical expansion in Malaysia, as well as the initial steps undertaken for the expansion of our specialty polyamides in Asia. For 2019, given the expected ramp-up of these investments, the sum of recurring and exceptional CapEx should be around EUR 610 million in total. At 13.4% of 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%. This was another strong achievement of the year for Arkema. Finally, EBITDA to cash conversion rate was 38%, that decreased slightly to around EUR 1 billion, including a EUR 230 million spent on acquisition during the year. This concludes my presentations and I now hand it over to Pierre.
Thank you, Marie-José. 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 fluid markets, such as automotive in Asia or consumer electronics. In this context, we will, as usual, focus on our strategy, our 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 will continue to roll out our industrial projects. You know that we have several startups which are expected this year in Advanced Materials, China, France, U.S., and also we have acrylics expansion in the U.S. They will all contribute to our growth, especially in the second part of the year.
In adhesives, we will 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 materials. Finally, we will continue our initiative as part of our operational excellence program, as well as our proactive action to raise prices selectively. Taking into account this different driver, we aim to demonstrate 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's excellent contribution of specialty molecular sieves and MMA PMMA. Momentum is expected to improve throughout the year, driven by the further development of specialty businesses, enhancing the group's profile.
We aim to achieve in 2019 an EBITDA comparable to 2018 record level. This would be really another excellent performance. I thank you very much for your attention and, we are now together with Marie-José, ready to answer your questions. Thank you.
Ladies and gentlemen, if you wish to ask a question, please press 0 and 1 on your telephone keypad. We have a first question from Martin Roediger.
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 calculate that 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 and 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?
Eventually that is because of the Base Erosion and Anti-Abuse Tax in the U.S. What you expect, is there also a further increase in tax rate to expect after 2019 because of that tax in the U.S.? Finally, on the others and corporate line within the segment reporting, it seems that the EBITDA in the corporate line was EUR -22 million in Q4, which is a rather low number for Q4 reportings. Can you explain the reasons behind and any hint what you expect for the corporate line contribution in 2019? Thank you.
I will start with the last one. I will go from the last one to the first one. I will start with the corporate line, which is quite easy, tax rate and fluorogases. On the corporate line, first of all, I think as you know every year we are between EUR 80 and EUR 90 divide by four, EUR 22 is nothing special. We had, as you know, paid in the Q4 what we call the prime Macron 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. It's nothing special.
If you split the year by four, you are close to the level of Q4, but you could argue that there is a specific element of prime Macron, which is a specific bonus which has been given in France by many companies in particularly favorable tax conditions. For the tax rate, Marie-José?
Yes. In fact, as I explained, the significant decrease in 2018 financial year comes really from the decrease in taxation in the U.S. Basically you've got a mix of geographies which contribute to the overall tax rates. This is basically the only reason for, let's say, the guidance at 21%. No major change, let's say, country by country in itself.
With regard to Fluorogases, we got, as usual, quite every quarter, many questions. What is always good is that depending on which analyst, we have different opinion on Fluorogases. We try to answer all questions. Overall, what I would like to state is that we have confirmed, as we said many times, that 2018 will be quite a good year for Arkema. We recognize not only Q4, but for the year above expectation. You remember that we said that 2017 was really, for us, a high reference point, that would be a reference point for the coming years. We did better in 2018. First we delivered 2017 as planned, I think it was really good news for everyone. 2018 was even better. As you know, we are completely transparent to you and we say, don't count on this high level forever.
2017 is more a reference point, we believe that for 2019 we should be between 2017 and 2018, which I think would be quite a good level. Why is Q4 so good? First, because Fluorogases is made of different products for different region with legislation. 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. We believe, we recognize that some of this action may be not repeatable in 2019. This is why we took this fair assumption to say that on Fluorogases we'd be between 2017 and 2018, which would be an excellent level. I think that's quite good. This shows the relatively good resilience of Fluorogases at a high level, which is what you expect as shareholders. Thank you.
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 got a clear answer. The figures are speaking for ourselves. There have been many questions with regard to fluorogas. Already in 2016 and 2017, our ability to maintain this kind of level. We did better in 2018, I think the figures are self-speaking, but as we do in other business line, we don't disclose openly to everyone all the exchange we are doing on the market. You can understand why.
Thank you.
We have another question from Alex Stewart on Barclays. Please go ahead.
Hi there. Good morning. Thanks for the presentation.
Hello.
Hi there. Firstly, on the Coating Solutions business, I calculate the volumes in your upstream business must have been up very strongly. Why did you have such good volume growth in acrylic monomers and esters in Q4, particularly given the slightly shaky economic environment? Perhaps there was a contribution from the Sunke joint venture, for example. Secondly, in fluorogases, did you have any either revenue and/or EBITDA contribution from your SB40 distribution agreement with Chemours? Was there any pre-buying of fluorogases, particularly R-22, into the tariff increases in 2019?
Yes.
Finally, sorry, it's quite a few questions. Finally, what euro-dollar rate do you assume in your guidance for 2019? Thanks.
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 thought, especially after all the question people were asking about China. Overall, we have good volume. We have done a very good job into global key account management and with some very good results. For example, in fracking, with also development of what is good to day appear. Water treatment is going fine. It has been quite a good Q4 compared to usual for Q4. But you know from every quarter, it's 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 propylene, which has weigh on trim margin.
This is why in the margin percentage is a little bit disappointing when you saw the growth. But it has really is a propylene effect. We have also de-stock because since we see such a volatility in the raw material pattern, we prefer to be cautious in stock. It had some impact in EBITDA that you see in the margin. On the volume, again, don't forget that in December in 2017, we had a big turnaround. This is why we are a little bit cautious in our guidance for acrylic in the first quarter. We had a turnaround in December, so it was 2017. When you compare December to, say, or Q4 2018 versus 2017, you have also a gap there or an increase there. But all in all, there were no specific elements.
It's an addition of different elements, and it's better to have good volumes than bad volumes. We are all happy about the volumes. With regard to Fluorogases, I'm not sure to understand your element below the line with Chemours, but there was no element below the line with Chemours whatever. I'm not sure to understand exactly the question. No pre-buy of R-22 in the U.S.
Sorry, my question about SB40 distribution agreement with them, which you announced at the end of last year. I wondered whether
Yeah
that agreement has come into effect already.
Okay. No, because you mentioned below EBITDA or whatever, I was not sure to understand on the agreement. Sorry, repeat that. The local
Contribution of the agreement to the EBITDA.
Okay. No, it was not. If your question is, was sort of this agreement significant in Q4, which would explain why fluorogases are so good, the answer is no. Okay? Okay, thank you very much. You're welcome.
We have another question from Patrick Lambert from MainFirst. Please, go ahead.
Hi. Good morning, everybody.
Hello, Patrick, you are there? We don't hear you anymore.
Patrick is no more here, sorry. We have Georgina Iwamoto from Goldman Sachs now. You can ask your question.
Hi, Thierry. Hi, Marie-José.
Hi, Georgina.
Hi. 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 1234yf, as 2020 is fast approaching, do you think that you will have any kind of route to participate in the automotive market refrigeration as the regulation changes? Just a bit more generally thinking about 2019 versus 2018. I know there were headwinds from raw materials and FX in 2018, I think it is somewhat surprising, to see such good pricing, not dropping through to the margin across the group. 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?
Hello, Georgina. On the 1234yf, yes, no news, otherwise we would have communicated. This file is still being discussed at the level of the European Commission, we have no more news. Otherwise, it would 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, the level of raw material increase for the downstream and you know, on the supply chain, how long it takes to go from the upstream down to the downstream. We suffer up until the end of last year. Even if 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 adhesive, we have still some negative effect from raw material.
We had good pricing, it was impossible to offset and we have seen that in other kind of specialty or formulation chemical line, you see exactly the same. We are not different. We have done a good job, raw material increase over a period of 18 months has been spectacular. We did a part of the job, we have still some to do in 2019, we know that. We believe the context will be more easy because, first, the comp will be more favorable, secondly, we believe that now we see stability in raw material, if not some decrease. We should, step by step, recoup the margin we have lost in the past two years. For example, in the adhesive and in the acrylic downstream.
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. With regard to specialties, we should have, especially in the second part of the year, a growing momentum.
The net impact is neutral to the margin, or do you think it can actually improve because the specialties is where the improvement is coming from this year?
As I mentioned, we believe that in specialties, so I mean, on Bostik and on acrylic downstream, we should be able to increase percentage of margin on the acrylic downstream and Bostik because of this momentum, continuing pricing increase and more stability, even a slight decrease of raw material. This is what we believe.
Okay, thank you. Just final clarification on fluorogases. With 12 months to go, Arkema can't serve the automotive refrigeration market at this point. Is that right?
Sorry?
They can't serve the automotive refrigeration market.
On the new model?
Yes.
Yes, on the new model, yes, but it has already happened. It's nothing new, and it is in Europe. It's not in the world. In the world, the situation is different and is not in our 2020 target, as you know. Nothing is different from what we told you one year ago, two years ago, three years ago. Your question is fair, but you know the answer since now more than a couple of years.
Okay.
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. I hope you appreciated that.
Okay. Thank you, Thierry. Thanks.
We have a question from Patrick Lambert from MainFirst. Please go ahead.
Okay. Can you hear me this time?
I can hear you.
Yeah. 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 quantification. Could you do the same with PMMA, your outlook on the impact of normalization for the full 2019 and also on the coating side, the Sunke expected contribution, the increase of capacity there. That's for the bridge of EBITDA. The second question regards 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 Q4 and also, again, a bit of granularity on adhesives margin versus the rest, if you can. Thank you.
With regard on, quickly on the first question, as you know, we don't give a line-by-line, especially with regard to the guidance, and nobody does it in detail. 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. If I look the way we see it in 2019, which is completely consistent with our guidance, is that we have acrylic momentum, which will continue to increase gradually growth of profitability. Then on the other side, you have MMA PMMA with normalization on three quarters because we had only one quarter of normalization and you have Fluorogas. I would say that acrylic will offset, let's say, to say something, MMA PMMA, okay?
Then you have the Fluorogas, which explains that we believe in 2019, on the intermediates, we gain some level of normalization. On the other side, you will get a slight increase on a far bigger sales level, which is in specialties. Okay? From a qualitative standpoint, at this time of the year, this is what I can tell you with regard to the margin. 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 because the increase, as I mentioned to Georgina, was so big that you cannot offset just in the year. Margin has been impacted. Basically, Bostik has lost a bit more than one point of margin year-on-year.
If we take also the year 2017, you could add a little bit. We have more or less 1.5 points to recoup the margin for Bostik, and this is certainly we try to offset as much out of this gap already in 2019. This is clear priority for Bostik. At the end, it has been quite a solid business, and also with input from acquisition. We recognize that we have lost similar to what we have seen for paint manufacturers, like one point of margin, a little bit more including the year before, but we plan to recoup most of it this year. For us, it's an upside for 2019. Other questions?
Yes, we have another question from Mubasher Chaudhry. Please go ahead.
Hi. Thank you for taking my question. Just two, please. On Bostik, 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. The second one is around acrylics overall. When you look at the supply demand and the dynamics there, what do you see are the utilization rates for the industry in 2019 and maybe even into 2020? Thank you.
Okay, Mubasher. Hello. Nice to talk to you. 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 two times, which means that we are well remaining very reasonable. We have financial flexibility not only for acquisition in adhesive, because we target also Advanced Materials and acrylic downstream. Clearly, we want to continue to move. Because we have the financial flexibility, does it mean that, and you have seen that in 2018, we need to make big moves every year. We try to be reasonable, cautious enough not to overpay and to make acquisition which really are value creative.
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, 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 acquisition than to make big, mid to big size companies. 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, is higher than it was a few years ago. Because you have a lot of money in the market and also because the interest rates are low. I think we have what we need in order to continue to grow Bostik by acquisition.
We have no worry on that, we have enough targets. On acrylics, on the utilization rate, I would say in the U.S. it's good. It's been a good level of tightness. Europe is more balanced, I would say, it's solid. China is still a little bit challenging, as you know. With the level of demand increase in China, and going back to the question before, we saw that even in the last quarter of 2018, we believe that demand will continue to grow. Even if supply grow a little bit, the balance should continue to improve in the coming years. Overall, for the adhesive all together, we are roughly mid-cycle for 2018. Okay. We should continue to improve in 2019. Thank you very much.
We have another question from Laurent Favre from Exane. Go ahead.
Thank you. Good morning, all.
Good morning.
Three questions, please. Two quick ones to start with. On adhesives, on raw materials, could you give us a bit of color of what you're seeing on the raw materials that we cannot track externally? We have a view on silicones and VAM and urethanes. I'm wondering what's happening on the rest of the cost pile. Second question on pricing, can you remind us how much of Bostik and generally adhesives, 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. The third one on acquisitions, I guess. You've just mentioned that you're still looking at bolt-ons. We've seen Parex recently. BASF is going through this round on construction chemicals, and GCP apparently is looking at strategic options with every option on the table.
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. With regard to raw material, I think I can see that you have studied it well. Clearly, silicones, after a significant increase, have decreased. VAM has decreased. We see some resin which decreased. 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 two.
Yes.
You have also some tackifying resin, which decreased. For the rest, it's more stable. I would say what we needed is not so much decrease, except with silicones. The silicones, which is mostly in sealants, pricing are following more or less. 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, but we were late each time because raw material continued to increase. We are not anymore in this context. I think it will be for adhesive to recoup their margin, and we start to see that in the Q1.
On what you call the annual cycle, are there some parts, if I understand well, of Bostik on which we have not passed price increase? There were up until Q4. I would say that for Q1, we would have closed the loop, and we would have passed price increase. There is always a few exceptions, but overall, for the big majority, everywhere in the Bostik portfolio, but we need the Q1 again. I hope it answer your question. On the adhesives, you know, when we say adhesives, sealants, mortars, associated product, it can cover a lot. In adhesive, you can go in many fields, and you have to be selective.
I would say that we don't disclose any significant increase, but I would consider the level of Den Braven, which was half a billion in terms of enterprise value, close to half a billion, would be for us a sort of big, below the one you are naming. Okay? The majority of what we will be doing will be more of bolt-on acquisition, which means between 20, 30, 40, 100, and above. We don't disclose more significant if really they make sense. Once you have said that, we are more a company which is targeting sealants, adhesives, glue, than to be a big mortar player. If you see what I mean.
I do. Thank you. That's very clear.
Thank you.
We have another question from Martin Evans from HSBC. Go ahead, sir.
Yeah, thanks. Morning. It is a question on your slide five, transformation on track, where you say that 70% of the group's sales by division are now specialties. I guess it is 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. Therefore, you have moved, which we are entitled to do for the purposes of this chart, you have 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? Again, just clarify exactly which divisions within your portfolio, within the 70% now, you would regard as specialty. Thanks.
Okay. First of all, if we ask everybody following this call and all our competitors, what are the definition of specialty? Everybody will come with a different definition. You know that HPM is a mix of Advanced Materials, which is around 20%, which is clearly specialties, and Bostik, which is more in the range of 12%-13%, and that which is also clearly specialties. The mix, the average you took is not so relevant. It is really the two 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 a specialty.
To answer to your question, clearly. I think it has been clear for everyone that after that you can have your definition, everybody can have his definition, but we are completely, I would say, committed to our own definition. Intermediate is MMA, PMMA, Fluorogases, and acrylic acid, so the F3 was Coating Solutions, 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 basically what we are looking for, and I believe that what we define as specialty, and if we look at five years, six years, 10 years, what we have built with this business portfolio, it has really a behavior of a specialty businesses. If we compare to the definition we have from peers.
After that, you could take a luxury goods or whatever, I think we are pretty much consistent. If not more strict than what we see in our industry. Okay.
Okay, thanks. Interesting.
We have another question from Chetan Udeshi from J.P. Morgan. Please go ahead.
Yeah. Thanks. Just one question on the contribution from new projects and expansions. 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 2019? The second question is, just around the Industrial Specialties piece, overall. If I look at the EBITDA in this business, it's grown from EUR 470 million in 2016 to now in 2018, EUR 675 million. It's almost a EUR 200 million increase. We've all debated about the MMA, PMMA normalization for a while. It probably seems to be happening now. Fluorogases, like you said, it's probably going to decline from high basis. How should we think about where is the new sort of EBITDA for that business compared to what we've seen in the past two years?
Are we going back to 2017, 2016 levels, or do you still think we end up closer to what we have in 2018, probably lower, but not too much lower than 2018?
Okay, good question. With regard to the new project, we don't give year by year what. Maybe I will answer a different question, but I think it will be useful for everyone who is. Because we had the question in recent times, which was, you know the stage where we put all our development projects, including the one for 2019, but also the one which are midterm. We have, for all these project, around EUR 700 million of CapEx for the next three, four years. Typically, in Arkema, we give you a lot of information. At Arkema, when we take an organic project, to understand the EBITDA generated by the project, for organic. Organic CapEx, we divide by between 3.5 to 4.5 times.
This means that to say something, a project of EUR 100 million of CapEx, to understand which EBITDA it would generate once it has fully ramped up, you divide by 3.5 to 4.5. Okay? With that, it gives you a clue, and it's nearly every year like this. On Industrial Specialties, I think we have done a good job, which has not been necessarily recognized by the market, because this year we have seen that, and the 2017 performance was fantastic from Industrial Specialties. At the end of the day, we have most questions of consulting to us. No, we would prefer specialties to grow quicker and we don't take into account your growth in Industrial Specialties. If it starts to go a little bit better, a bit lower, everybody should be happy for the same reason.
No, I think that with regard to our intermediates, I would say, business because in Industrial Specialties you have tire chemical, for example, which is a specialty business. If I take our intermediate business, again, we think that you have acrylic, we are still for the coming year's potential for increase. We are more close to the mid-cycle than upper cycle. You have MMA, no surprise. We were the first one to say, I started to normalize and we continue to normalize. You have three quarters. Fluorogases should be between 2017 and 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.
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. All in all, it will stay at quite an excellent level, but not as strong as 2019 and certainly above the 2017.
Thank you.
We have another question from Alex Stewart from Barclays. Go ahead.
Hi, very quick question, sorry. Your 700 million hybrid, I think, is first callable in maybe October 2020. Have 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 for end of 2020. As we described previously, we consider it as a good instrument to have in the portfolio of financing in the company. We'll be looking, of course, into the market for the right timing to maintain this instrument into our portfolio financing, yes.
Is it possible to refinance early?
Everything's possible, of course.
Okay.
It has to make sense. I think we are open to everything which would be good for the company. After that, it has to make sense and certainly to do it early is costing money. I think we don't believe we have to be in a hurry about any decision. Other questions for us here or
Yeah. We have another question from Patrick Lambert from MainFirst. Please go ahead.
Thanks. Follow-up question for Marie-José, I guess. What's left on the tax assets to be realized over the next few years and the timing of that? That's question number 1. Question number 2, you've been pretty active in 3D printing over 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 pathway for 3D printing. Thank you.
On 3D printing, Patrick, clearly is one of the growth platform for Arkema at the same level as batteries or light weighting or bio-sourced. The growth of the market is exponential. What it is exactly is 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 development. Will it be huge? Difficult to say today, but I think it potentially can be a blockbuster for Arkema. As composite, as all light weighting, as bio-sourced. It's impossible to give you any clear target. 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, for UV curing. Which one is going to prevail? I think they will all prevail. It depends really what you want to make at the end. What is clear is that we are shifting from a world where it was mostly for prototyping to a world where it will be really part of the manufacturing processes. A really big company will use, in their manufacturing process, printers. It's 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. 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 at stake is basically roughly EUR 1 billion losses accumulated over the past 10 years. You apply the French tax rate to it, you get basically the amount of potential tax savings.
Thank you, Marie-José. Before we close, maybe we can take a last question. Just before this last question, maybe to summarize a few points because it's good summary of following your different question. First, is directly following Marie-José'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 good shape. We have really, even if we not overuse them, we have really the financial flexibility to execute our long-term strategy. 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, I assume it was in line with what you were expecting.
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, 2018, where we have been really very strong in more intermediate product line. We should not underestimate the fact that the specialty business has done quite well, quite robust, quite solid. They were a little bit masked, this performance, by the fact that intermediate business were maybe, from your standpoint, sometimes too good. In 2019, our message is to say that this specialty business will continue to play fully 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. I trust on you for that, but really will continue to play fully their role. Intermediate businesses certainly will be a bit lower, but quite reasonably, but will stay at quite, we are confident on that, quite good. You see our track record on the more intermediate business in the past year, on which we had a few questions. I think we are really deliver and will 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 two different dynamics, one on the offsetting each other, one on Industrial Specialties, a bit lower, and 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. I think our shareholder base should appreciate that which is fully aligned with the strategy of the company, which is really to continue to reinforce the 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 continue to look at potential acquisition. Hopefully 2019 will be another year of bolt-on acquisition. This is what I wanted to say. Maybe a last question to close, we'll finish for today.
Yes, we have another question from Georgina Iwamoto from Goldman Sachs. Please go ahead.
Thank you, Thierry, for the opportunity for just a final question. Can you help us with how you think about the word comparable? Is it comparable higher or lower? Maybe if you can build a kind of range around it. Just from what you've been saying on the call so far, 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. 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 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 the summer. We'll do this year as we have been doing the past 13 years. I think it's reasonable to do that. I don't think you expect more than us. It would not be fair to do that to you. I think we are confident on the year. We have give you a lot of qualitative elements.
I think it's a guidance which should give you confidence. Hopefully, Georgina, you will take it as such.
Thank you very much, Thierry.
Okay.
We have no further questions. Sorry.
Okay. I would like really to thank you for your time and all your very interesting question. As you know, we'll see most of you in roadshows and the IR team is really at your disposal if you have any kind of question, 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.