Ladies and gentlemen, welcome to the Achimov's Q1 twenty eighteen Results Conference Call. I will now hand over to Thierryle Munier, CFO. Sir, please go ahead.
Thank you. Good morning, everybody, and welcome to this conference call. With me today is the IR team, As usual, we have posted on our website. In addition to the press release, a set of slides, which details the first quarter performance that I am pleased to present to you today. As you have seen from the press release this morning, Arkema started the year very well, with an EBITDA at EUR 383,000,000, up 8% against a very good performance of the first quarter of last year.
This is the highest EBITDA and the highest EBITDA margin ever delivered in the first quarter. Before looking at the results in more sales, I would like to highlight a few key points. First, we have managed to far more than offset the negative FX impact resulting from the significantly stronger euro and have delivered an excellent performance. Excluding the impact of currencies, EBITDA would have increased by 15% against the very strong performance of last year, and even more taking into account the transactional effect. It's a combination of the ongoing positive internal momentum and a few drivers specific to the first quarter, such as the strong contribution from specialty molecules.
The second is a very good 7.3 percent sales growth year on year at constant scope of business and FX. This is supported by prices up 5.4 percent, reflecting our actions to increase our selling prices in our down stream specialty businesses in order to offset higher raw material costs. Price effect also reflects the continuing positive environment in both Fluorogases and MMAP MMA. The 3rd point is the 3% progression of our adjusted net income and adjusted EPS, which reflects both the higher EBITDA and the lower tax rate. Finally, excluding the impact of the acquisition of XL Brands in early January, net debt is stable compared to the end of last year, This is a very solid performance given the usual seasonality of the working capital during the first quarter, which mechanically results in a cash inflow.
Since the beginning of the year, we also continued to actively implement our strategy to step up the development of our specialties, In Adelise, we closed the acquisition of XL Brands, a leader in soft flooring in the U. S. At the very beginning of the quarter. After a quarter within Arkema, the integration and development of this business are going well, and XL Brands had a very good and promising start of the year. In technical polymers, we announced a 25% global production capacity increase for polyamide12 in Changshu in China.
We also announced a few days ago the startup ahead of schedule of the 20% capacity increase in PVDF in the U. S, Only 1 year after a similar expansion was started in China. All these developments will enable to support the strong demand from our customers in these regions for this higher value added solutions for markets such as new energies, water filtration, consumer goods and automotive. In composites, we signed a partnership with XL, a leader in composite for aeronautics to develop thermoplastic composite solutions for aerospace using our expertise in PEKK together with X XL ones. A joint R and D laboratory will be set up in France as part of its partnership.
As you can see, another basic after implementing and delivering on our strategy. Now, let's look in more details to the first quarter performance. At constant exchange rate and business group, sales were 7.3% up at 1,000,000,000 with a 5.4% price effect and 1.9% volume effect supported by performance material high performance material with a strong quarter in specialty molecular currency effect at minus 6.6 percent, mainly reflects a stronger euro versus U. S. Dollar, The small net scope effect corresponds to the integration of XL Brands And CMP within Bostik and the divestment of the OXXO alcohol business.
At EUR 383,000,000, the 7.9% growth in EBITDA was driven by the Ag Performance Materials and industrial specialty segments and was achieved despite a stronger euro versus the U. S. Dollar with a negative million impact or translation only. On top of that, we estimate that the negative production effect, which mostly affects advanced materials could add 1 third to this figure. EBITDA margin stood at 17.6 percent, up 110 basis points year on year.
Recurring operating income amounted to 270 1,000,000, up 13.5% from last year. It includes 1,000,000 depreciation and amortization, 1,000,000 below last year level, benefiting from a positive currency effect. ReBIT margin is also significantly up, 12.8%. Operating income increased to EUR 265,000,000. It includes 1,000,000 non recurring charges corresponding mainly to restructuring expenses and million of depreciation and amortization related to the revaluation of assets carried out as part of the Bostik and Dan Brevan purchase price allocations.
Financial results stood at minus 1000000, 1000000 lower than last year, as a result of the refinancing achieved in 2017 at more favorable market conditions. As mentioned, taxes are down on last year at -1000000 compared to minus 66 1,000,000 in the first quarter of 2017. Tax rate, excluding exceptional items, is at 21% of recurring operating come significantly lower than last year and notably reflecting the benefits from the tax reform in the United States. Consequently, adjusted net income is at 33 percent of last year at EUR 195,000,000, that is two point per share. Let's now go through the performance of our 3 business divisions.
Sales in high performance materials amounted to EUR 998,000,000, 6.9 percent up on last year at constant and business scope. Volumes are up 7.3%, driven notably by the large number of projects carried out over the first quarter in specialty molecular sales as well as the ongoing benefits from innovation. Price effect is globally stable for the division, excluding molecular sales, price effect was at around 2.5%, which reflects action to increase selling prices, which we will continue to implement in the coming months. The 1.5% scope effect reflects integration of XL Brands within Bostik. And finally, currency effect was negative at 6 point 1 percent.
At EUR 176,000,000, the EBITDA was up 6% on last year, despite stronger euro and higher raw material costs. It reflects a strong contribution from Polytolar fees and integration of XL Brands with Investec and year over year good performance over services driven by innovation. For the second quarter, we expect the performance of Atmos Materials to be impacted by national strikes as a French railway company, which affect the transportation by train of certain products and raw materials, and thus the operation of certain sites, mainly in Advanced Materials. EBITDA margins stood at 17.6% up on last year. Let's now move to Industrial Specialties at constant exchange rate and business scope since we're 9.6 percent up year on year, supported by a 13.6% positive price effect on continuing ag prices in Fluorogases in Europe and Asia as well as tight market conditions in MMA.
Volumes were down 4% compared to last year. This mainly results from the anticipated lower quotas in Fluorogases. Currency effect was negative at 7%. EBITDA of the division was 15 point 7% up year on year at 1,000,000 and EBITDA margin stood at 24.5% confirming the excellent performance of the division across its different business lines with year on year EBITDA growth in each of the 4 business lines. In Coating Solutions, sales were 5.2 percent up year on year at constant exchange rate and bit less growth at 1,000,000 driven by a 6% price effect, which reflects ongoing actions to raise selling prices across the entire acrylic chain.
Volumes were 0.8 percent down versus a high basis of comparison in the first quarter of 2017, which benefited from some restructuring effect in the context of rising raw materials. Weather conditions in Europe and the United has also impacted negatively revenues this quarter, especially in cutting related businesses. The minus 1.5% scope effect results from the divestment of the OXXO and Coral business. Currency effects was negative 7.2 As expected, EBITDA was at 1,000,000, down on the high basis of comparisons of the first quarter of last year, We're an acrylic unit margin in China temporarily reached peak levels. For the rest of the year, margins are expected to improve overall compared to last year, in line with our initial assumptions.
At 13%, EBITDA margin adjusted well in the first quarter. A few wells now on cash flow and net debt. Free cash flow was nearly balanced at -1,000,000 and up on last year. This is a very solid performance taking into account the usual seasonality of working capital at the beginning of the year. However, working capital ratio and annualized sales is slightly down at 15.3% versus 15.6% in the first quarter of last year.
This is another good achievement by our teams. Consequently, and excluding M and A, net debt was globally stable versus the end of 2017, taking into account the 1,000,000 cash tail for the acquisition of XL Brands. Net debt stood at 1,000,000,000 with the gearing slightly up at 27%. I will now comment on elements of the outlook, which are mentioned in the press release, macroeconomic environment market conditions are in the continuity with the start of the year with a stronger euro and higher raw material cost. As usual, beyond the economic context, we will continue to focus on what we control, which is our internal momentum and more specifically innovation in advanced materials and the integration of XL Brands within Bostik.
We will also continue our operational excellence program as well as our actions to further increase selling prices. Finally, we expect market conditions in our most intermediate businesses to remain overall robust. Taking into account the strong start of the year and our confidence for the rest of the year, Arkema confirmed its objective to increase EBITDA in 2018 compared to the excellent 2017 performance. So I thank you very much for your attention. I am now ready to answer your questions.
The first question comes from Martin Roediger, Kepler Cheuvreux. Sir, please go ahead.
Yes. Thanks. Hello, Thierry. I wish you all the best for the future. I have three questions.
Firstly, on High Performance Materials and here in particular, about the phasing effect in specialty molecular sieves. There was a large number of projects carried out in Q1, which drove volumes up What is your view regarding such projects in the next 3 quarters of 2018? And staying with high performance materials. And here, switching out to pricing effects. You say that selling prices were up by 2.5% in the segment if we exclude Molycare Sieves, but including the dilutive factor from Molycare Sieves selling prices, at HPM were down by 0.4%.
So if I make the math and molecular ceased pricing must have collapsed. Can you explain that? And the third question is on industrial specialties. Regarding EBITDA, you forecast robust perspectives moving forward. Does this mean the tight market situation in MMA PMA will stay in the next couple of months?
And there is no normalization in the market ahead. Or what do you mean with robust perspective? Thanks.
Okay, Martin. Good morning. So Okay. I will try to answer to your three questions. So as regard to, the Molecular Business, as you know, it's a relative it's this business has some specificities, which are related to the fact that So no activity, which is not linear.
So depending on the calendar of projects and replacements of molecular seas, year on year, we may have some differences between the quarter. Globally, we expect, we expect, and we are confident in 2018 to deliver a strong performance in TMS comparable to the one that we had in 2017. But the difference is that, between 2017 2018, the calendar is very different. In 2017, the sales were relatively well spread over the fourth quarter of the year. Wise this year, it will be more concentrated on the first quarter.
So that's the only specificity. An element that you have to take into account, but it doesn't mean that we have any worries around this business, this business. We have a clear view on the outlook related to the replacement scheduled of existing, existing equipment. It's just the specificity of this activity, which make the calendar different from 1 year to 2 years. So that's all part of the question.
The second is about the price effect. In fact, due to the way that we are calculating the price effect, when you have a big, change, especially in volumes, which is the case, in molecular fees, And when you calculate the price effect, you are, basing your calculation, the volume of the preceding year. So we'll see the preceeding, obviously, we're significantly lower. We do have a mix effect, which is significant and molecular fees. So you have a very important positive volume effect and a negative price effect, which is just reflects the reflex of the difference between the mix during the 2 years.
I agree, a little bit difficult to identify in our figures. But globally, the contribution during the first quarter for TMS has been more important than last year. And when you look separately to volumes and price, you have 2 different effects, large volume positive volume effect and a large negative price effect, but it's related to the mechanism, which is applied to compute growth effect for IS and MMA, the first comment I will make is that it's important to have in mind that the good performance of the specific industry specific during the quarter is not only related to MMAPNMA. The 4 business lines performed very well. As far as MMA is concerned, we are still expecting some normalization during the year.
It will probably not happen yet during the second quarter, but, during the second half of the year, probably, and it is the assumption that we, we've made at the beginning of the year. So far, we have not changed this assumption Yes. We were wrong. It could be an upside, but we have no reason to believe that there will not be some normalization with the addition is in the Saudi Arabia.
Thank you. The next question comes from Alex Stewart from Barclays. Sir, please go ahead.
Hi, good morning, Terry. Thanks for taking my call. My question, I think at the time you announced the acquisition, you gave the revenue contribution to CMT, and you gave the implied EBITDA contribution Bell didn't give, enough to calculate the implied margin. So could you possibly tell us whether either XL or CMP, were dilutive or accretive to the high performance materials margin in the first quarter?
Okay, okay, Alex. So, 3rd, the contribution of XL and CMP, XL being far larger than CMP, is in line with our expectation based on the figure that we provided at the time of the acquisition, we are absolutely in line. There is no bad surprise there. So the contribution is positive. And is in line with what we expected in term of margin also.
It's at a level at which we expected it to be. And it's accretive, but in terms of contribution as regard to the global EBITDA of HPM, it's relatively small. So the impact is very very limited.
The ability is accretive to margins. So
Yeah, yeah, yeah, yeah, yes, absolutely.
You very much.
Thank you. The next question comes from Thomas Willsorff from Citi. Please go
Good morning, Jerry. Thanks for taking my questions, if I may. Firstly, on, Coaching Solutions, a note 6% price increase. Is there any differentiation between the acrylic monomer business embedded in that and Coaching resins. Could you give us some, and could you give us just a bit of a market update as to where you are noting that prices are now starting to move higher, in, in that chain.
And Secondly, if I may, you, we talk about negative 4% volumes including the Fluorogases, what would the volumes benefit took out Fluorogases? And, obviously, as we start this we're starting to see the obviously impact of HFC fade out. What's the expected volume impact that we should think about, from rolling forward both 2018 and also into 2020, if you have a guide for that? Thank you.
Okay, Thomas. So we'll try to answer to your two questions. As regard to acrylics, the price globally reflects as you're selling prices with differences of market conditions between the different geographic area and As I said earlier, last year, we had a very strong basis of comparisons in China, which was related to the fact that for specific reasons, we had a high margin, it was significantly higher than what we expected. So now we are back to a more normal situation and even if there are some difference between the geographic areas, we remain confident that market condition will continue to improve for the upstream part of the segment. And for the resin parts, obviously, the challenge is to continue to pass price price increase to customers.
And during the first quarter, volumes were affected by weather conditions, which we are not very subtle variable either in the U. S. Nor in Europe, but otherwise, globally, the situation is improving according to what we expected. For a funeral gas team.
I'm just sorry, Jared. Just just on that. Do do you have any gauge of, you know, whether it'd be normal, you know, is there any sense you could give us for quantifying the kind of that weather impact?
In the quarter? Well, it's difficult to quantify. We can expect some recovery in the second quarter, which is because of the seasonality of these activities, traditionally the strongest, the strongest quarter of the year. So probably we could recover some volume during the second quarter in, in coating resins, but we have to be cautious about the specific market or decorative pants, which is not very good. So will be more difficult to say.
We can expect some compensation during the second quarter. It is difficult to quantify.
Sure.
For Fluorogases, we remain cedent and the positive on the outlook for the coming quarters and even beyond the ceiling in the quarter of 2018. In terms of volumes, obviously, we have to take into account the impact of the reduction of the quota. But in terms of price, market conditions are pretty good. And due to the situation, we are in the situation now, which is neutral better balance between the U. S.
And the rest of the world. And, we don't take expect this situation to change, we expect a strong Q2 because of the seasonality of Fluorogases.
And a
weaker H2, once again, because of the seasonality, but we are positive and we benefit benefits from the mix of our portfolio of products in Fluorogases during the first we benefited from it during the first quarter and will continue for the coming quarter. So we are positive on fuel gas.
The next question comes from Charlie Webb from Morgan Stanley. Please go ahead.
Good morning, Thierry. Just a couple from me. Just circling back to the intermediate discussion, at the end of last year, you had talked about positive acrylics, Fluorogases, largely stable year on year through this year versus last year. MMA PMA normalizing and I guess slightly down year on year. Given Fluorogases, it continues to be net positive pricing over over volume declines and acrylics, you still have confidence that continues to get better this year.
And then in a PMA still starts very strong, you're saying, in Q2, you're going to see continuations in that theme. Does that not seem very conservative right now? First question. And then second question, just on, I guess, health in the demand, globally, how is China right now as we move into Q2, it has demand picks up and likewise in the U. S.
Post that call, whether you talked about are you seeing demand improving?
Okay, Charlie. So two questions. As regard to the intermediate businesses, it's too early in the year to change anything around our estimate for the global performance of the 3 activities. Fluorogases, we said that we expected the performance to be stable to slightly up on last year high performance. And we agreed with you that the first quarter, this shows a very positive sign, but it's really too early.
To extrapolate the global performance for the full year, even as I said, we are pretty confident about the environment and the performance of Fluorogases. As I said also for PMMA, as long as we have not really seen what could be the impact of the normalization is difficult to change our view on this specific subject and for acrylic acid, we are expecting, as I said, the normalization and to be back at mid cycle conditions somewhere in 2018. So globally, at this state of the year, I will not change the general outlook. We will see at the end of Q2, because then we will have behind us a quarter, which is traditionally strong for Fluorogases. And I hope that we will have some clear review on what could be the impact of the new Saudi capacity in NMA.
On the market on the market. So at this stage, I will not change. Is it conservative is too early to say. We will update you at the end of the second quarter. For China, as far as our projects are concerned, after a relatively slow start of the demand after the Chinese New Year, we are at the level at the level at which we expect it to be.
So there is no negative designs. Obviously, there are many questions around what could be the consequences of the duty that could be imposed on imports from the U. S, but for the time being, it's more theoreticos and, and in any case, it will be very limited for our activity. So globally, no, we have no signs of slowing down. We have a steady level of performance and demand level of demand, which is at the level at which we expected it to be.
Perfect. And then maybe just one last quick question on raw material inflation. What are the key raw materials, especially in HPM that you're seeing notable inflation, that you're obviously having to make the price adjustments for? I think it was a quite broad based.
Well, it's a broad basis. The swings is broad basis. We have some specific situation where the supply is extremely tight and the price increase goes beyond what we could expect from just the raw material price increases, we do see that in other activities in the chemical chemical chain. So it's a very specific situation in which we have price increase, which are amplified by the specific supply situation. So it takes a little bit longer to pass the price increase because they are very significant.
If you look at the price increase of I'm sorry, it's already significant, but if you were to that, the impact of specific tight supply situation. It's more than that. So it takes a little bit longer. To pass the price increase because we have to pass it to our customer who has to pass it to its customer. So it's a chain and it takes a little bit longer, but we are successful in implementing this price adjustments.
Understood. Thank you very much and good luck in retirement.
Thank you.
Thank you. The next question comes from Emmanuel Meto from ODDO Securities. Sir, please go ahead.
Good morning, Thierry. Several questions for me, please. 1st, in 2017, Your EBITDA growth was +17 percent, the same figure each quarter from Q1 to Q4. You achieved this time an EBITDA growth of +8 percent in Q1 twenty eighteen. Do you think that trend is well representative of what should achieve on a full year basis, do we have to expect more volatilities in the next three quarters?
My second question is about, the spike in France at SNCF You mentioned an impact in Q2. Would it be just for high performance materials or Could we also advise other businesses? Could it be significant if those type are running until the end of the quarter? And my last question is about the ForEx impact So minus 1,000,000 in Q1 for translation. Could you help us also on transaction, if you remind us how it works at the group level.
Thank you very much.
Okay, Emmanuel. So first, on the AP growth. It's a nice stride, but we have never indicated that we expected EBITDA to grow by 17% in 2018. So, you will recall that our guidance is that we, our objective is to make EBITDA grow over the year, we did not indicate any quantified target. So difficult to answer to your question.
The 8% growth of the first quarter was driven by different factors, but you have to take into account the very negative ForEx impact and then we've come back on that. So, no, I cannot guarantee to you today that we will have a 8 percent growth per quarter, which will mean 8% growth for EBITDA for 2018. We will probably, as usual, give you more detailed information when we will publish our second quarter results. But at the end of the first quarter, we remain more qualitative and fortified and don't forget that during this first quarter, we've benefited from the calendar of molecular sales. So I will move to the strike point later on.
I will switch directly to the FX exposure because obviously it has an impact, significant impact on EBITDA. You will remember that we indicated that we estimate the conversion effect of dollars rate evolution at 1,000,000 on EBITDA for a 10% variation of the exchange rate. We were above that during the first quarter. And on top of the U. S.
Dollar you have also observed seed and the 1,000,000 only relates to the conversion effect. The transaction effect is much more difficult to evaluate. It's a related to the fact that we are exporting products from the Eurozone. And obviously, depending on the rate, the competitiveness is, it could be affected, which is the case right now. And it look mostly affect HP HPM and within HPM, I would say in the specialty polyamide because of our monomer production base in France.
You know that on the longer term, we are working on reducing its exposure through the investment of a new platform in Asia. But for the time being, this is the area where we are most exposed to this competitiveness effect. And globally, we indicated that we estimate this impact to be at around 1 third of the conversion effect. It's not an exact figure, but I think that it is close to the actual impact but mostly concentrated on the HPM And Specialty Proteomics business. Which by the way is significantly lower than what it was 10 years ago where at the time because We had much more exports coming from France to the other part of the world.
Our exposure to the competitiveness and transactional effect was estimated at 50% of the conversion effect. For the strike, in fact, the impact of the strike is related to 2 elements: the transportation of finished goods, but also transportation of certain raw materials and because of the reduction of availability of the supply of certain raw material, We have to reduce the operating rate of certain of our units, those are the units which are working under continuous processes, which means that they are not running at the optimum, which has a significant impact on the yield and the margin of those activities. And even if it a bit a bit early to give a precise figure. We estimate that it could be comparable to Methanol turnaround in term of, EBITDA impact, which means large maintenance turnaround, which means probably a little bit above 1,000,000. It does not affect our general guidance for the year, but clearly for the second quarter and more specifically for HPM, strides will have a negative impact because of this effect.
Thank you, Madeline.
Thank you. And your next question comes from Geoff Ayer from UBS. Sir, please go ahead.
All my questions have been asked.
So thank you. The next question comes from Patrick Lambert, Raymond James. Please go ahead.
The whole team. Congratulations, Terry, for this future. And I think just one Yes, two questions regarding HPM. Actually, the margins development, basically, if you could help us put some colors on margin development in both adhesives, Bostik and the others. And and the over parts of HPM, it seems that the technical polymers must have done pretty well to get to to the 17.6 percent EBITDA margin?
And second related to that is, a lot of companies in construction have chemicals have, of course, mentioned U. S. And Europe disruption of whether Is that the same for the Additives business, Vakema? And also do you see that coming back into Q1 to Q2 in terms of maybe not catching up from Q1, but sorry, the start of Q2 in terms of construction exposed business? Thank you.
Okay, but good morning. So for the question around the margin for HPM is concerned, but don't forget that in the 17.6% EBITDA margin that you were mentioning, you have obviously the impact of the molecular fees, but and obviously, we bring the figure up as compared to the other in the field. Which are affected by the raw material price increase in terms of gross margin, we are still lagging behind the adjustment of the selling price to are utilized on average 3 axis, which means that year on year, gross margin are still under pressure. Been still under pressure during the first quarter.
Is it in line with the end of last year in terms of margins or?
Well, it's difficult to We have not provided the figure for the last quarter. I would say that it's more or less in the market conditions are in the continuity of the end of the year. And the difference is mostly between the first quarter and this year and the first quarter of year. It will probably continue during the second quarter and start to meet us from the third quarter. As far as the construction market is concerned, yes, as other chemical companies, we have been affected by the weather conditions in the US and in Europe.
It's generally speaking, mostly in the coating and construction businesses. For our disease, it has been relatively limited it's more sensitive on the cutting solutions. And a lesser extent to certain application within technical polymers.
And looking at Q2, are we by contract.
As I will make the same comment that I have made, hopefully, all geographies, Q2, obviously, because of the traditional seasonality, the strongest quarter for many most would say of our product lines. So yes, it will be a key, a key quarter, and we can expect some compensation with, as I said, when I was commenting the performance of Coaching Solutions, with certain cautiousness around the the co participant market.
The next question comes from Peter Croft, Societe Generale. Please go ahead.
Yes. Good morning. Good morning, Terry and everyone. Hi. Thank you.
I've got a couple of quick. I just want a clarification first. I think I think you were suggesting on Bostik, yes, if the margins and down year on year because of the raw materials, but you expect catch up for the full year. I'm just wondering if we could say that for all the downstream businesses under pressure, including the resins in Coating Solutions that the margin can catch up with the second half and then be pretty similar year on year, if not above. And then something I asked 6 months ago, and I know clearly PMMA, MMA is going to normalize.
And clearly, the normalized margin is well below what you've been reporting, but the 17% to 19% I'm not actually remembering was, set when Fluorogases was recovering or certainly near trough and, that did fully recover when there might have been a little skepticism about it back then. So perhaps just a little comment on that guidance. I'm sure you're not going to tell me much. And then finally, just a clarification, I missed this as well on the tax the 21% that you saw underlying in the first quarter. Your guidance seems to remember the full year is 23%.
Just want to check on that. Thank you.
Okay, Peter. So as far as margins are concerned for the specialty businesses, Yes, we expect for whole of them some improvement during the 2nd part of the year and to continue to be under some pressure during the first half of the year, which means after Q1, we expect it to continue in Q2 because as I said, the pass through of raw material price increase is progressive. So it will be the same for the other businesses. For the second question around the intermediate business, I will make the and comment as the one that I did earlier, it's a little bit early to adjust if necessary, our global guidance because the visibility on PMMA impact for the new capacities remains limited. But we are confident that we should maintain a performance for the 3 businesses which are part of the intermediate business is stable year on year.
We will see later on when we will have more visibility And after the second quarter for fuel gases, if some more information could be provided around this guidance. For the tax rate, you're right, your figures are right. So We have guided on the 23 percent rate for the year. So it was difficult to extrapolate tax rate for for the quarter and the full year. And with the improvement of the performance of Fluorogases in Europe, we can expect also some additional taxes coming from Fluorogases in Europe.
So For the time being, I think that the 23% remains an adequate indication for the year.
Great. Thanks, Isabelle. All of us.
Thank you, Peter. Thank
you. The next question comes from chetan Udeshi, JP Morgan. Please go ahead. Yes, hi,
thanks. A couple of quick ones. On first one in HPM, can you just give us some sort of sense of what is the volume growth excluding the impact from phasing, phasing impact in the molecule disease? And number two question was on Fluorogases. Given the price increases that we've seen in the legacy see refrigerant gases market, do you see a tipping point anytime soon where those gases becomes so expensive that people move to newer generation, HFO refrigerant gases where you don't have an exposure at the moment, at least.
Thanks.
Okay. Let's see that. Okay. So on the first on the HPM, without TMS, the volume, volume growth would have been limited to positive, the positive volume effect, but don't forget that our priority in HPM is not on volumes. It's on margin.
So it's a mix of the 2 and it's always a complex mix to optimize both volumes and margins in an environment where prices are growing significantly up. So to answer to your question, yes, the volume effect is positive without TMS, but limited for fuel gases, the risk of seeing more rapidly new generation of FTEs replacing the on run is relatively limited because the price difference still exist it means what it means only is that the price will not continue to rise indefinitely for the phase down to gases, but they will continue to remain high. And it's usually the assumption that it could be in competition the U. S. Mainly acquisition to replace or to adapt the equipment.
So it's not that So we have no specific concern around this risk. Thank you.
Thank you. The next question comes from geddy Panda Schrider. Please go ahead.
Hello? Hello? Yes. Siri, hello. You your retirement forced me to press star 1.
So thanks a lot for all the all the times and really appreciate all your clarity and communication and everything. Just one question really, because I have to ask something to you before you leave. Could you give us some update on the project You guys are contemplated in the US on thiochemicals with the Novus? Well, it's,
okay. So
then thank you first. And on thiochemicals, No, I have no specific comments to make around the Navios. You know that We have certain thoughts about an extension of capacity together with no use, but it's at a relatively early stage of discussion. So it's a little bit early to discuss that. But it's something which we are working together with voice.
Okay. Thanks a lot and wish you very well for the future.
The next question comes from Martin Evans HSBC. Please go ahead.
Yeah. Thanks very much. And again, I'd like to echo that, Thierry. Good luck with the future. And congratulations.
Just one question on raw materials. I'm just trying to get my head around, your references to it because they're not hugely specific in terms of which product streams have hurt you. Are your internal budgets assuming that we're at the top or at the peak of the current squeeze and that essentially your budgets will be in place by passing through the current negotiated selling price increases in other words, is the 2nd quarter going to be the worst period for you? Or is there a slight risk to the second half that both the inflation continues and you begin to meet a little bit of resistance the other end for accepting these inflationary price rises? Thanks.
Good morning, Martin. Good to hear you. Well, the question is difficult to answer. In the present environment, the answer is that yes, we expect, as I said, here in the second quarter to be under some pressure because of the raw material price increase. And to see the situation is positively up from the second quarter.
Obviously, this is based different elements, one of them being the fact that certain new capacities will be put on stream for certain intermediate raw material for us. And, but obviously, if the price of oil were to go up to Android, to figure during the 2nd part of the year, we will have to face the same situation as the one that we are facing each time. The price of raw material is moving towards or downwards, which is a lag time between the price increase and the selling price adjustments. But in the present environment, we have no reason to consider disruption of the environment, yes, I confirmed that the 2nd quarter will continue to be under pressure and that should use as from the 3rd quarter.
Thanks very much.
It's a very quick technical question just back on molecular sieves where you do refer amongst other things ongoing benefits from innovation, in these products. Can you just maybe give us an example of that? Because these are obviously historically very mature chemical, processes. So what's the sort of innovation or the increased demand that you're seeing from versives? Thanks.
Yes. Okay. It's difficult to give a precise answer to such questions, but we have different innovation underway. For HPM in, as you know, in water treatment, lightweight material that will continue to drive the progression, but it's difficult to be more specific at this stage. Thank you, Martin.
Thank you. The last question comes from Daniel Duchta, MainFirst. Please go ahead.
Yes, thank you very much. Just one quick question remaining on Fluorogases here. You mentioned the pricing environment also is favorable in Asia. I think in 2017, in particular, you have benefited from several, yeah, environmental outages, I would say, in China. Can you say a bit more how that situation is evolving now?
And whether you expect these sites basically we do shut permanently because I think your comments on Fluorogas were quite positive. That would be very helpful. Thank you very much.
Okay, Daniel. Well, okay, we are not providing any details, precise detail by geographical area. What is for sure in China is that globally, the environment in term of regulatory control is much more stringent than what it was in the past. We that means that for certain producer, investments, we are required to continue to run their business and it helps to etcetera is a little bit of supply in Fluorogases, but the key element for us is not, you know, to see, it's important for us to have better market conditions in Asia, but what explain most of the possession of the organization is coming from Europe.
Great. Thank you very much. And of course, enjoy the time.
Thank you.
Okay.
So There are no more questions. We will end this conference call. And I would thank you very much, you very much for this your participation and our collaboration during those past years. Thank you very much and good bye.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.