AI assistant
Arkema — Interim / Quarterly Report 2017
Aug 2, 2017
1117_ir_2017-08-02_db352b4d-062e-4092-aab2-03e6a274dcbb.pdf
Interim / Quarterly Report
Open in viewerOpens in your device viewer
ARKEMA
INNOVATIVE CHEMISTRY
Half-year financial report
First half ended 30 June 2017
Arkema
420, rue d'Estienne d'Orves – F-92705 Colombes Cedex – France
Tél. : +33 1 49 00 80 80 – Fax : +33 1 49 00 83 96
Société anonyme au capital de 757 738 650 euros – 445 074 685 RCS Nanterre
arkema.com
I- Half-year activity report ...3
II- Condensed consolidated interim financial statements at 30 June 2017 ...12
III- Declaration by the person responsible for the half-year financial report ...39
IV- Report from the statutory auditors on half-year financial information ...40
This document is a free translation in English of Arkema's half-year financial report for the first half ended 30 June 2017. This translation has been prepared solely for the information and convenience of English-speaking readers. No assurances are given as to the accuracy or completeness of this translation, and Arkema assumes no responsibility with respect to this translation or any misstatement or omission that may be contained therein. In the event of any ambiguity or discrepancy between this translation and the French document, the French document shall prevail.
2
I - HALF-YEAR FINANCIAL REPORT
- FIRST HALF 2017 HIGHLIGHTS
1.1. Organic growth projects
In January 2017, as part of its operational excellence program, the Group announced plans to replace two 45,000 tonnes per year acrylic acid reactors at the end of their life with a single new 90,000 tonnes per year reactor at its Clear Lake site in the United States. With this investment of some US$90 million, Clear Lake will further increase its competitiveness.
In February 2017, the Group announced that it doubled its Kepstan® PEKK production capacities in France, and confirmed an investment in a Kepstan® PEKK world-scale plant at its Mobile site (Alabama) in the United States, expected to come on stream end 2018.
Start-up of new production capacities
In April 2017, Arkema announced that it had brought on stream the 25% increase in its Kynar® PVDF production capacities on its Changshu platform in China. This investment supports Arkema's growth strategy in Advanced Materials (1) and will enable the Group to continue supporting its customers' growth in Asia, in particular in the new energies and water management markets, as well as in more traditional applications like construction coatings and the chemical process industry.
Arkema inaugurated on 24 April 2017 its new specialty molecular sieve capacity at its Honfleur plant in France. This investment of some €60 million will enable the Group to support its customers' growth in the refining and petrochemicals markets, in particular in Asia and the Middle East and to consolidate its n° 2 world ranking in molecular sieves.
1.2. Acquisitions and divestments
Divestment of oxo-alcohol business
As part of its divestment program, the Group announced, in March 2017, that it had completed the sale to INEOS of its 50% stake in Oxochimie, their oxo-alcohols manufacturing joint venture, and of the associated business. The revenues thus divested amount, for the Group share, to around €40 million.
Acquisition of CMP Specialty Products business
In May 2017, the Group announced the acquisition by Bostik of CMP Specialty Products, the flooring and floor preparation business of US based specialist CGM. This business, which generated US$15 million sales in 2016, offers strong synergies with Bostik. This acquisition fits perfectly with Bostik's strategy to expand in the growing US construction market and to offer its customers a complete range of solutions for the flooring market. This acquisition is also fully part of the Group strategy to accelerate its growth in Specialty Adhesives with bolt-on acquisitions.
1.3. Financing
On 11 April 2017, Arkema completed a €700 million bond issue with a ten-year maturity at a coupon of 1.5% per year. On 23 June 2017, Arkema completed a €200 million tap of this bond. These operations enabled the Group to refinance and extend the average maturity of its financial resources in favorable market conditions.
1.4. Miscellaneous
Arkema filed a new complaint with the European Commission against Honeywell for abuse of dominant position with respect to patents covering the use of the refrigerant 1234yf in car air conditioning systems. Consistent with the new complaint, Arkema has withdrawn its previous complaint.
(1) Advanced Materials include two Business Lines: Technical Polymers and Performance Additives.
4
2. ANALYSIS OF THE FIRST HALF 2017 FINANCIAL RESULTS
The figures in this section are provided on a consolidated basis and in accordance with Arkema's organization into three divisions: High Performance Materials, Industrial Specialties, and Coating Solutions.
2.1. Analysis of Arkema's results
| (In millions of euros) | 1st half 2017 | 1st half 2016 | Change |
|---|---|---|---|
| Sales | 4,350 | 3,845 | + 13.1 % |
| EBITDA | 753 | 643 | + 17.1 % |
| EBITDA margin (%) | 17.3 % | 16.7 % | - |
| Recurring operating income (REBIT) | 530 | 420 | + 26.2 % |
| REBIT margin | 12.2 % | 10.9 % | - |
| Other income and expenses | (30) | (1) | - |
| Operating income | 500 | 419 | + 19.3 % |
| Equity in income of affiliates | 0 | 6 | - |
| Financial result | (51) | (50) | + 2.0 % |
| Income taxes | (148) | (126) | + 17.5 % |
| Net income | 301 | 249 | + 20.9 % |
| Of which: non-controlling interests | 4 | 4 | - |
| Net income – Group share | 297 | 245 | + 21.2 % |
| Adjusted net income | 319 | 240 | + 32.9 % |
Sales
In 1st half 2017, sales reached €4,350 million, +13.1% up on 1st half 2016. At constant exchange rates and business scope, growth stood at +9.2%. Volumes +3.2% up, grew in the three divisions, driven notably by good demand in Asia and benefits from innovation, in particular in Advanced Materials. The +6.0% price effect, positive in all three business divisions, reflects the gradual improvement in the acrylic cycle, higher prices of certain fluorogases, as well as the Group's actions to adjust its sales prices to the higher raw material cost environment. The +3.2% scope effect primarily reflects the contribution of Den Braven and the impact of the divestment of the activated carbon and filter aid and of the oxo-alcohol businesses. The currency effect was limited at +0.8%.
The share of High Performance Materials represents 45% of Group sales (46% in 1st half 2016). Industrial Specialties are stable at 31%, and Coating Solutions represent 24% (23% in 1st half 2016).
From a geographic standpoint, Europe accounts for 38% of Group sales (37% in 1st half 2016), North America 33% (34% in 1st half 2016), Asia 25% (24% in 1st half 2016), and the rest of the world 4% (5% in 1st half 2016).
EBITDA and recurring operating income
At €753 million, EBITDA reached an all-time high for a semester. +17.1% up on 1st half 2016, it grew significantly in all three business divisions. This excellent performance is supported by growth in Specialty Adhesives with the integration of Den Braven, the benefits from innovation and new projects in Advanced Materials, the return of Fluorogases to high level of results, continuing very favorable market conditions in the MMA/PMMA chain, and a gradual improvement in the acrylic cycle.
At 17.3%, EBITDA margin grew compared to 1st half 2016 (16.7%) despite higher raw material prices.
In line with the very strong EBITDA increase, recurring operating income rose to €530 million from €420 million in 1st half 2016. It includes €223 million depreciation and amortization, stable compared to last year.
REBIT margin, corresponding to recurring operating income over sales, grew at 12.2% from 10.9% in 1st half 2016.
Operating income
Operating income stood at €500 million in 1st half 2017 against €419 million in 1st half 2016. It includes -€30 million other income and expenses. These items essentially correspond to (i) -€23 million depreciation
and amortization related to revaluations of tangible and intangible fixed assets carried out as part of the Bostik and Den Braven purchase price allocations and (ii) -€5 million impact of the step-up at market price of Den Braven inventories.
Over the 1st half of 2016, other income and expenses, which amounted to -€1 million, corresponded mostly to depreciation and amortization related to the revaluation of tangible and intangible fixed assets carried out as part of the Bostik purchase price allocation, and the financial consequences of changes to some pension schemes within the Group.
Equity in income of affiliates
Equity in income of affiliates mostly reflects the contribution of the company CJ Bio Malaysia Sdn. Bhd. in which the Group has a 14% stake.
Financial result
Financial result stood at -€51 million against -€50 million in 1st half 2016. Following a €900 million bond issue with a yearly 1.5% coupon in 2nd quarter and before the repayment in the 4th quarter 2017 of a €500 million bond with a yearly 4% coupon, cost of debt temporarily increased compared to last year. This change in the cost of debt was offset by favorable currency effects on debt of certain foreign subsidiaries denominated in currencies other than the one of their accounts and by the variation due to higher discount rates of actuarial gains and losses on provisions for long service awards.
Income taxes
Income taxes amounted to -€148 million against -€126 million in 1st half 2016. It includes a €5 million tax paid on 2016 dividend as well as a €7 million reversal of provisions for deferred tax liabilities accounted for as part of the allocation of the Bostik and Den Braven purchase prices. Excluding these two items, tax rate amounted to 28.3% of the recurring operating income, reflecting the geographic split of the results.
Net income, Group share and adjusted net income
Net income Group share rose significantly to €297 million against €245 million in 1st half 2016.
Excluding the impact after tax of non-recurring items, adjusted net income stood at €319 million against €240 million in 1st half 2016, i.e. €4.22 per share (€3.21 per share in 1st half 2016).
5
2.2. Analysis of results by division
HIGH PERFORMANCE MATERIALS
| (In millions of euros) | 1st half 2017 | 1st half 2016 | Change |
|---|---|---|---|
| Sales | 1,966 | 1,747 | + 12.5 % |
| EBITDA | 340 | 314 | + 8.3 % |
| EBITDA margin (%) | 17.3 % | 18.0 % | - |
| Recurring operating income (REBIT) | 262 | 237 | + 10.5 % |
| REBIT margin | 13.3 % | 13.6 % | - |
Sales in High Performance Materials stood at €1,966 million, +12.5 % up on 1st half 2016. The +7.5% scope effect mainly reflects the integration of Den Braven, as well as the divestment of the activated carbon and filter aid business. At constant exchange rate and business scope, sales grew by +5.0% with volumes up +3.5%, in particular in Asia in Technical Polymers, where demand in the areas of lightweighting and design of materials, new energies and automotive is strong. Demand progressed in specialty molecular sieves for petrochemical applications with the ramp-up of the new Honfleur unit (France). The price effect was positive at +1.5%, reflecting the Group's actions to adjust its sales prices to higher raw material costs.
EBITDA grew to €340 million, +8.3% up on 1st half 2016 (€314 million in 1st half 2016), and EBITDA margin stood at 17.3% (18.0% in 1st half 2016), resisting well in a context of higher raw material costs and despite the impact of the large maintenance turnaround in 2nd quarter 2017 in specialty polyamides in Marseille (France). This performance was supported by good volume growth, in particular in Advanced Materials, which comprise Technical Polymers and Performance Additives, and by the growth of Specialty Adhesives which benefited notably from the integration of Den Braven. In Specialty Adhesives, which now account for over half of the division's sales, EBITDA margin over the 1st half of the year resisted well at 13.3% (13.8% in 1st half 2016).
In line with the very strong EBITDA progression, recurring operating income stood at €262 million, and included €78 million depreciation and amortization, overall stable compared to last year. REBIT margin amounted to 13.3% in 1st half, close to last year (13.6% in 1st half 2016).
INDUSTRIAL SPECIALTIES
| (In millions of euros) | 1st half 2017 | 1st half 2016 | Change |
|---|---|---|---|
| Sales | 1,345 | 1,195 | + 12.6 % |
| EBITDA | 316 | 263 | + 20.2 % |
| EBITDA margin (%) | 23.5 % | 22.0 % | - |
| Recurring operating income (REBIT) | 227 | 177 | + 28.2 % |
| REBIT margin | 16.9 % | 14.8 % | - |
Sales in Industrial Specialties reached €1,345 million, +12.6% up on 1st half 2016. At constant exchange rate and business scope, sales grew by +11.1%, driven by a +4.2% increase in volumes. The +6.9% price effect mostly reflects the ongoing improvement in the prices of certain fluorogases in the three main geographic regions as well as market conditions in the MMA/PMMA chain. The currency effect was positive at +1.5%.
At €316 million, the division's EBITDA was up by +20.2% compared to the 1st half 2016 (€263 million), while EBITDA margin rose to 23.5%, strongly up on last year (22.0% in 1st half 2016). These results reflect the return of fluorogases to high levels of results, the ongoing very good market conditions in MMA/PMMA, that could however start to normalize by year-end, and the solid performance of Thiochemicals. In Fluorogases, the Group should by year-end achieve the target it had set itself for end 2018 to improve this activity's EBITDA by €100 million compared to 2014.
Recurring operating income stood at €227 million and included €89 million depreciation and amortization, slightly up compared to last year (€86 million). REBIT margin reached 16.9%, strongly up on last year (14.8% in first half 2016).
6
7
COATING SOLUTIONS
| (In millions of euros) | 1st half 2017 | 1st half 2016 | Change |
|---|---|---|---|
| Sales | 1,024 | 889 | + 15.2 % |
| EBITDA | 138 | 113 | + 22.1 % |
| EBITDA margin (%) | 13.5 % | 12.7 % | - |
| Recurring operating income (REBIT) | 83 | 54 | + 53.7 % |
| REBIT margin | 8.1 % | 6.1 % | - |
At €1,024 million, sales in Coating Solutions rose by +15.2% compared to 1st half 2016, supported by a +13.9% price effect reflecting some improvement in the acrylic cycle and the actions to raise sales prices in the entire chain. Volumes were up by +1.1%, and include in the 2nd quarter 2017 the impact of the large maintenance turnaround at Clear Lake in the United States in acrylic monomers and of inventory adjustments at certain customers in paints and coatings following the very strong start to the year in a context of rising propylene prices. The divestment of the oxo-alcohol business resulted in a -1.1% scope effect. The currency effect was positive at +1.2%.
At €138 million, EBITDA was +22.1% up over last year (€113 million in 1st half 2016), and EBITDA margin stood at 13.5% (12.7% in 1st half 2016). In line with the Group's assumptions for 2017, unit margins in acrylic monomers gradually improved compared to the low points of 1st half 2016. This improvement largely offset the impact of the Clear Lake large maintenance turnaround and the impact in acrylic downstream activities of higher raw material costs, including acrylic acid, which affected their performance in particular during the 2nd quarter. This latter impact should diminish significantly over the rest of the year given the actions made to pass through the higher cost of raw materials.
Recurring operating income stood at €83 million and included €55 million depreciation and amortization down on last year (€59 million). REBIT margin reached 8.1% over the 1st half 2017, up compared to the 1st half 2016 (6.1%).
8
2.3. Group's cash flow analysis
| (In millions of euros) | 1st half 2017 | 1st half 2016 |
|---|---|---|
| Cash flow from operating activities | 315 | 259 |
| Cash flow from investing activities | (203) | (222) |
| Net cash flow | 112 | 37 |
| Net cash flow from portfolio management | (2) | (5) |
| Free cash flow * | 114 | 42 |
| Non-recurring items including non-recurring capital expenditure | (13) | (19) |
| Recurring cash flow ** | 127 | 61 |
| Cash flow from financing activities | 720 | (104) |
| Variation in cash and cash equivalents | 832 | (67) |
- Cash flow from operations and investments excluding the impact of portfolio management
** Net cash flow excluding the impact of portfolio management and non-recurring items
Cash flow from operating activities
In 1st half 2017, the Group generated +€315 million operating cash flow, up +€56 million on that of 1st half 2016 (+€259 million). This strong increase reflects the +€110 million growth in EBITDA compared to the 1st half of 2016, partially offset by an increase in working capital excluding non-recurring items (2) (-€237 million working capital outflow in 1st half 2017 against -€189 million in 1st half 2016) due to the usual seasonality of the activity, a significant increase in sales and higher prices of some raw materials since end 2016.
Cash flow from operating activities also includes -€145 million current income taxes (-€129 million in 1st half 2016) and -€46 million cash items in the financial result (-€42 million in 1st half 2016). Finally, it includes non-recurring items mostly corresponding to restructuring costs totaling -€15 million (-€21 million in 1st half 2016) and portfolio management operations amounting to -€3 million (-€1 million in 1st half 2016).
Cash flow from investing activities
Cash flow from investing activities amounted to -€203 million in 1st half 2017 against -€222 million in 1st half 2016. It includes €137 million (3) capital expenditure in tangible and intangible assets against €148 million in 1st half 2016. Over the full year, the Group's capital expenditure should be close to €450 million.
It also includes a -€56 million variation in fixed asset payables (-€47 million in 1st half 2016) and included, in 1st half 2016, a -€17 million flow corresponding to the loans granted to employees as part of the share capital increase reserved for employees finalized in April 2016.
Cash flow from portfolio management was very limited over the semester (+€1 million), the impact of the acquisition of CMP business being almost fully compensated by the impact of the divestment of the oxo-alcohol business.
Recurring cash flow and free cash flow
Excluding non-recurring items and portfolio management operations, recurring cash flow stood at +€127 million in 1st half 2017 against +€61 million in 1st half 2016.
Free cash flow, which corresponds to the net cash flow excluding the impact of portfolio management, stood at +€114 million in 1st half 2017 against +€42 million in 1st half 2016.
Group's net cash flow
After taking account of the impact of portfolio management, the Group's net cash flow stood at +€112 million in 1st half 2017 compared to +€37 million in 1st half 2016.
Cash flow from financing activities
Cash flow from financing activities reached +€720 million in 1st half 2017, against -€104 million in 1st half 2016. It primarily includes a bond issue for a net amount totaling €891 million and the payment of a €2.05 dividend per share in respect of the 2016 financial year, totaling €155 million.
(2) Excluding +€8 million non-recurring items mostly linked to portfolio management operations.
(3) Excluding investments relating to portfolio management operations. In 2016, excluding €20 million corresponding to asset reallocation without impact on net debt.
In 1st half 2016, the -€104 million cash flow from financing activities included mainly the dividend payment and a share capital increase reserved for employees.
2.4. Group's balance sheet analysis
| (In millions of euros) | 30/06/2017 | 31/12/2016 | Change |
|---|---|---|---|
| Non-current assets (1) | 5,502 | 5,724 | -3.9 % |
| Working capital | 1,366 | 1,105 | +23.6 % |
| Capital employed | 6,868 | 6,829 | +0.6 % |
| Deferred tax assets | 163 | 171 | -4.7 % |
| Provisions for pensions and employee benefits | 506 | 520 | -2.7 % |
| Other provisions | 397 | 419 | -5.3 % |
| Total provisions | 903 | 939 | -3.8 % |
| Long-term assets covering some provisions | 69 | 76 | -9.2 % |
| Total provisions net of non-current assets | 834 | 863 | -3.4 % |
| Deferred tax liabilities | 321 | 285 | +12.6 % |
| Net debt | 1,471 | 1,482 | -0.7 % |
| Shareholders' equity | 4,293 | 4,249 | +1.0 % |
(1) Excluding deferred taxes.
Between 31 December 2016 and 30 June 2017, non-current assets decreased by €222 million. This variation was primarily due to:
- €137 million tangible and intangible capital expenditure (4);
- €246 million net depreciation and amortization including €23 million depreciation and amortization resulting from the revaluation at fair value of tangible and intangible fixed assets as part of Bostik and Den Braven purchase price allocations;
- a €168 million negative currency effect mainly related to the strengthening of the euro versus the US dollar at the close of the period; and
- a €45 million net amount resulting from the finalization of Den Braven purchase price allocation, the integration of CMP's assets and the disposal of the assets of the oxo-alcohol business.
At 30 June 2017, working capital was up by €261 million compared to 31 December 2016 including a -€55 million currency effect due to the weakening of the US dollar versus the euro at the close of the period. This increase mainly reflects the usual seasonality of working capital and a stronger business activity than last year. At 30 June 2017, the working capital to annualized sales ratio (5) stood at 15.5%, significantly down compared to 30 June 2016 (17.2%).
Consequently, between 31 December 2016 and 30 June 2017, the Group's capital employed increased by €39 million to reach €6,868 million by 30 June 2017.
At 30 June 2017, gross provisions amounted to €903 million. Some of these provisions, accounting for a total of €69 million at this date, are covered by a guarantee facility granted by Total and described in note 16.2 to the notes to the condensed interim consolidated financial statements at 30 June 2017 and therefore by long-term assets recognized on the balance sheet. These mainly consist of provisions related to former industrial sites in the United States. Accordingly, at 30 June 2017, the provisions net of these non-current assets amounted to €834 million.
The breakdown of net provisions by type was as follows: €352 million pension liabilities (€366 million at 31 December 2016), €154 million other employee benefit obligations, stable compared to 31 December 2016, €130 million environmental contingencies (€131 million at 31 December 2016), €41 million restructuring provisions (€47 million at 31 December 2015), and €157 million other provisions (€165 million at 31 December 2016).
(4) Excluding investments relating to portfolio management operations.
(5) Computed as working capital at 30 June / (2nd quarter sales * 4). At 30 June 2016, the working capital included fixed asset payable relating to the transfer of an acrylic acid production line to the joint-venture Taixing Sunke Chemicals. The ratio computation at 30 June 2016 excludes this item.
Between 31 December 2016 and 30 June 2017, net provisions for pension liabilities decreased by €14 million, the negative impact of changes in discount rates being offset by the revaluation of financial assets and by a positive currency impact resulting from the strengthening of the euro versus the US dollar at the close of the period. The €15 million decrease in other net provisions mainly came from a -€16 million currency effect mainly resulting from the strengthening of the euro versus the US dollar at the close of the period, the reversal of provisions being offset by the increase in provisions booked during the same semester.
Net debt amounted to €1,471 million at 30 June 2017 (€1,482 million at 31 December 2016), i.e. 34% of shareholders' equity. It includes the payment of the dividend for a total amount of €155 million. The variation in net debt is explained by cash flows as detailed in paragraph 2.3 of this report, and by a positive currency effect on the Group's debt swapped in US dollars.
Shareholders' equity amounted to €4,293 million against €4,249 million at end 2016. The €44 million increase primarily corresponds to (i) €301 million net income for the period, (ii) the payment of a dividend of €2.05 per share totaling €155 million, and (iii) €132 million net negative currency translation adjustments. Over the 1st half 2017, variation in actuarial gains and losses on provisions for pensions booked in equity was not material.
3. TRANSACTION WITH RELATED PARTIES
Transactions between consolidated companies have been eliminated in the consolidation process. In addition, in the normal course of business, the Group has business relationships with certain non-consolidated companies or companies which are accounted for under the equity method. The values involved are not significant.
4. HIGHLIGHTS SINCE 30 JUNE 2017
In July 2017, Arkema announced several significant growth projects in two of its main future growth pillars: Advanced Materials and Thiochemicals.
In Advanced Materials, the Group announced an investment plan of some €300 million in Asia over five years in the bio-based polyamide 11 chain to support the strong growth of its customers in particular in automotive, 3D printing, as well as in consumer goods like sports or electronics. This new plant, which will produce both amino 11 monomer and its polymer Rilsan® PA 11, should come on stream in late 2021. It will enable Arkema to increase by 50% its Rilsan® PA 11 global production capacity. This investment also includes a 50% increase in global production capacities for Pebax®.
The Group also announced, in Advanced Materials, a project to expand by over 30% its production capacity of UV photocure resins at its Nansha site facility in China. This new production line of Sartomer, the world leader in specialty photocure resins, should come on stream early 2019. It will in particular help meet strong customer demand in Asia in the electronics, 3D-printing and inkjet printing cutting-edge markets.
Finally, in Thiochemicals, Arkema announced a project to double its methyl mercaptan production capacity at its Kerteh site in Malaysia to support the strong growth of the animal feed, petrochemical and refining markets in Asia and to strengthen its world leading position in high value added sulfur derivatives. This project should come on stream in 2020.
5. MAIN RISKS AND UNCERTAINTIES
The main risks and uncertainties which the Group could face over the next six months are those described in the 2016 Reference Document filed with the Autorité des marchés financiers ("AMF") on 30 March 2017 under number D.17-0259. This document is available on Arkema's website under the heading "Investor Relations" (www.finance.arkema.com) and on the AMF website (www.amf-france.org). Additionally, an update of contingent liabilities, where applicable, is given in the notes to the half-year consolidated financial statements.
6. OUTLOOK
In the second half of 2017, the global macro-economic environment should remain volatile with contrasted dynamics by end-market and by region, higher raw material costs than last year, and the euro strengthening versus the US dollar.
In this context, Arkema will continue to benefit from growth in adhesives and the integration of Den Braven, innovation in Advanced Materials and downstream acrylics, as well as better prices in fluorogases. The Group will continue to ensure that the higher cost of certain raw materials is reflected in its selling prices. Finally, it will continue implementing its operational excellence initiatives to offset part of fixed cost inflation.
The performance of the first half of the year leads the Group to upgrade its initial EBITDA objective for 2017. The Group now anticipates to exceed €1.3 billion EBITDA and achieve between €1,310 million and €1,350 million EBITDA for the full year.
At a Capital Markets Day in July 2017, the Group recalled its 2020 ambition and announced ambitious financial objectives for 2023, with a REBIT margin between 11.5% and 12.5%, significantly up on 2016, and an EBITDA to free cash conversion rate maintained at 35%. These objectives will be achieved over time while keeping a net debt over EBITDA ratio below 2, a return on capital employed of at least 10%, and a solid investment grade rating by financial rating agencies.
This ambition will be driven by accelerating the development of specialty businesses, which should represent more than 80% of the Group's sales by 2023. In this context, Arkema aims to more than double the sales of its Specialty Adhesives in 2023 compared to 2016, which should then represent more than one third of its total sales, while also aiming to achieve a 12.5% to 13% REBIT margin in this activity by then. In Advanced Materials, which should represent more than 25% of its total sales in 2023, the Group aims to achieve a 14% to 15% REBIT margin.
The Group indicates that all its objectives are defined in normalized market conditions and under current IFRS rules, and notes that the achievement of its objectives is based on assumptions deemed reasonable by the Group, as of the date of this document and within this time frame (in particular regarding any future development of global demand, conditions relating to raw material and energy costs, balance between supply and demand for products marketed by the Group and their price levels, and currency exchange rates). However, it takes no account of the occurrence, as the case may be, of certain risks described in greater detail in the 2016 Reference Document, in particular in paragraph 1.7.2, or any unknown factors related to the economic, financial, competitive or regulatory environment in which the Group operates, liable to affect the achievement of its objectives.
7. GLOSSARY
The main performance indicators used by the Group are defined in note B.17 of the notes to the consolidated financial statements at 31 December 2016 in section 4.3.3 of 2016 Reference document.
As part of the analysis of its results or to define its objectives, the Group also uses the following indicators:
- REBIT margin: corresponds to the recurring operating income (REBIT) as a percentage of sales;
- Free cash flow: corresponds to cash flow from operating activities and investing activities excluding the impact of portfolio management;
- EBITDA to free cash conversion: corresponds to the ratio of EBITDA on the free cash flow excluding exceptional capital expenditure. Free cash flow will be restated to offset the impact of the raw material environment on changes in working capital;
- Return on capital employed: corresponds to the ratio: (REBIT - current income taxes) / (net debt + shareholders' equity) under current IFRS rules.
In analyzing variations in its results, particularly variations in sales, the Group analyzes the following effects (such analyses are non-audited):
- effect of changes in scope of business: effects of changes in scope of business arise on acquisition or disposal of an entire business or first-time consolidation or deconsolidation of an entity. An increase or reduction in capacity is not analyzed as creating a change in the scope of business;
- effect of foreign currency movements: the effect of foreign currency movements is the mechanical impact of consolidation of accounts denominated in currencies other than the euro at different exchange rates from one period to another. The effect of foreign currency movements is calculated by applying the foreign exchange rates of the previous period to the figures of the current period;
- effect of changes in prices: the impact of changes in average sales prices is estimated by comparing the weighted average net unit sales price of a range of related products in the current period with their weighted average net unit sales price in the prior period, multiplied in both cases by the volumes sold in the current period;
- effect of changes in volumes: the impact of changes in volumes is estimated by comparing the quantities delivered in the current period with the quantities delivered in the prior period, multiplied in both cases by the weighted average net unit sales price in the prior period.
Condensed consolidated interim financial statements at 30 June 2017
II - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AT 30 JUNE 2017
CONSOLIDATED INCOME STATEMENT ...13
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...14
CONSOLIDATED BALANCE SHEET ...15
CONSOLIDATED CASH FLOW STATEMENT ...16
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ...17
A. HIGHLIGHTS ...18
B. ACCOUNTING POLICIES ...18
C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...21
1. Information by business segment ...21
2. Information by geographical area ...22
3. Other income and expenses ...23
4. Adjusted net income ...23
5. Income taxes ...24
6. Business combination ...24
7. Earnings per share ...25
8. Intangible assets ...25
9. Property, plant and equipment ...26
10. Shareholders' equity ...27
11. Provisions for pensions and other employee benefits ...28
12. Other provisions and other non-current liabilities ...29
13. Liabilities and contingent liabilities ...30
14. Debt ...30
15. Share-based payments ...31
16. Off-balance sheet commitments ...32
17. Subsequent events ...34
D. SCOPE OF CONSOLIDATION AT 30 JUNE 2017 ...35
Condensed consolidated interim financial statements at 30 June 2017
CONSOLIDATED INCOME STATEMENT
| (In millions of euros) | Notes | 1^{st} half 2017 | 1^{st} half 2016 |
|---|---|---|---|
| Sales | (C1&C2) | 4,350 | 3,845 |
| Operating expenses | (3,328) | (2,965) | |
| Research and development expenses | (121) | (112) | |
| Selling and administrative expenses | (371) | (348) | |
| Recurring operating income * | (C1) | 530 | 420 |
| Other income and expenses * | (C3) | (30) | (1) |
| Operating income * | (C1) | 500 | 419 |
| Equity in income of affiliates | 0 | 6 | |
| Financial result | (51) | (50) | |
| Income taxes | (C5) | (148) | (126) |
| Net income | 301 | 249 | |
| Of which: non-controlling interests | 4 | 4 | |
| Net income - Group share | (C4) | 297 | 245 |
| Earnings per share (amount in euros) | (C7) | 3.92 | 3.28 |
| Diluted earnings per share (amount in euros) | (C7) | 3.91 | 3.27 |
| Depreciation and amortization | (C1) | (223) | (223) |
| EBITDA * | (C1) | 753 | 643 |
| Adjusted net income * | (C4) | 319 | 240 |
- See note B17 to the consolidated financial statements at 31 December 2016 – Accounting policies / Main accounting and financial indicators.
13
Condensed consolidated interim financial statements at 30 June 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| 1^{st} half 2017 | 1^{st} half 2016 | |
|---|---|---|
| (In millions of euros) | ||
| Net income | 301 | 249 |
| Hedging adjustments | 24 | 11 |
| Other items | - | (6) |
| Deferred taxes on hedging adjustments and other items | - | (1) |
| Change in translation adjustments | (135) | (42) |
| Other recyclable comprehensive income | (111) | (38) |
| Actuarial gains and losses | 5 | (16) |
| Deferred taxes on actuarial gains and losses | - | 2 |
| Other non-recyclable comprehensive income | 5 | (14) |
| Total income and expenses recognized directly through equity | (106) | (52) |
| Comprehensive income | 195 | 197 |
| Of which: non-controlling interests | 1 | - |
| Comprehensive income – Group share | 194 | 197 |
Condensed consolidated interim financial statements at 30 June 2017
CONSOLIDATED BALANCE SHEET
| (In millions of euros) | Notes | 30 June 2017 | 31 December 2016 |
|---|---|---|---|
| ASSETS | |||
| Intangible assets, net | (C8) | 2,742 | 2,777 |
| Property, plant and equipment, net | (C9) | 2,461 | 2,652 |
| Equity affiliates: investments and loans | 33 | 35 | |
| Other investments | 33 | 33 | |
| Deferred tax assets | 163 | 171 | |
| Other non-current assets | 233 | 227 | |
| TOTAL NON-CURRENT ASSETS | 5,665 | 5,895 | |
| Inventories | 1,144 | 1,111 | |
| Accounts receivable | 1,319 | 1,150 | |
| Other receivables and prepaid expenses | 178 | 197 | |
| Income taxes recoverable | 50 | 64 | |
| Other current financial assets | 12 | 10 | |
| Cash and cash equivalents | 1,499 | 623 | |
| TOTAL CURRENT ASSETS | 4,202 | 3,155 | |
| TOTAL ASSETS | 9,867 | 9,050 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||
| Share capital | 758 | 757 | |
| Paid-in surplus and retained earnings | 3,328 | 3,150 | |
| Treasury shares | (7) | (4) | |
| Translation adjustments | 169 | 301 | |
| SHAREHOLDERS' EQUITY - GROUP SHARE | (C10) | 4,248 | 4,204 |
| Non-controlling interests | 45 | 45 | |
| TOTAL SHAREHOLDERS' EQUITY | 4,293 | 4,249 | |
| Deferred tax liabilities | 321 | 285 | |
| Provisions for pensions and other employee benefits | (C11) | 506 | 520 |
| Other provisions and non-current liabilities | (C12) | 440 | 464 |
| Non-current debt | (C14) | 2,268 | 1,377 |
| TOTAL NON-CURRENT LIABILITIES | 3,535 | 2,646 | |
| Accounts payable | 898 | 932 | |
| Other creditors and accrued liabilities | 359 | 402 | |
| Income taxes payable | 74 | 62 | |
| Other current financial liabilities | 6 | 31 | |
| Current debt | (C14) | 702 | 728 |
| TOTAL CURRENT LIABILITIES | 2,039 | 2,155 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 9,867 | 9,050 |
Condensed consolidated interim financial statements at 30 June 2017
CONSOLIDATED CASH FLOW STATEMENT
| (In millions of euros) | 1^{st} half 2017 | 1^{st} half 2016 | |
|---|---|---|---|
| Net income | 301 | 249 | |
| Depreciation, amortization and impairment of assets | 246 | 243 | |
| Provisions, valuation allowances and deferred taxes | (1) | (51) | |
| (Gains)/losses on sales of assets | (2) | (2) | |
| Undistributed affiliate equity earnings | 0 | (4) | |
| Change in working capital | (229) | (186) | |
| Other changes | 0 | 10 | |
| CASH FLOW FROM OPERATING ACTIVITIES | 315 | 259 | |
| Intangible assets and property, plant, and equipment additions | (152) | (168) | |
| Change in fixed asset payables | (56) | (50) | |
| Acquisitions of operations, net of cash acquired | 1 | - | |
| Increase in long-term loans | (23) | (39) | |
| Total expenditures | (230) | (257) | |
| Proceeds from sale of intangible assets and property, plant, and equipment | 5 | 7 | |
| Change in fixed asset receivables | 0 | - | |
| Proceeds from sale of operations, net of cash sold | 11 | 20 | |
| Proceeds from sale of unconsolidated investments | 0 | - | |
| Repayment of long-term loans | 11 | 8 | |
| Total divestitures | 27 | 35 | |
| CASH FLOW FROM INVESTING ACTIVITIES | (203) | (222) | |
| Issuance (repayment) of shares and paid-in surplus | (C10) | 2 | 46 |
| Purchase of treasury shares | (C10) | (4) | (6) |
| Dividends paid to parent company shareholders | (C10) | (155) | (143) |
| Dividends paid to non-controlling interests | (1) | (1) | |
| Increase / decrease in debt | (C14) | 878 | 0 |
| CASH FLOW FROM FINANCING ACTIVITIES | 720 | (104) | |
| Net increase/(decrease) in cash and cash equivalents | 832 | (67) | |
| Effect of exchange rates and changes in scope | 44 | 33 | |
| Cash and cash equivalents at beginning of period | 623 | 711 | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | 1,499 | 677 |
Condensed consolidated interim financial statements at 30 June 2017
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
| (In millions of euros) | Share capital | Paid-in surplus | Hybrid bonds | Retained earnings | Translation adjustments | Treasury shares | Shareholders' equity – Group share | Non-controlling interests | Shareholders' equity |
|---|---|---|---|---|---|---|---|---|---|
| At 1 January 2017 | 757 | 1,211 | 689 | 1,250 | 301 | (4) | 4,204 | 45 | 4,249 |
| Cash dividend | - | - | - | (155) | - | - | (155) | (1) | (156) |
| Issuance of share capital | 1 | 1 | - | - | - | - | 2 | - | 2 |
| Purchase of treasury shares | - | - | - | - | - | (4) | (4) | - | (4) |
| Grants of treasury shares to employees | - | - | - | (1) | - | 1 | - | - | - |
| Share-based payments | - | - | - | 7 | - | - | 7 | - | 7 |
| Other | - | - | - | - | - | - | - | - | - |
| Transactions with shareholders | 1 | 1 | - | (149) | - | (3) | (150) | (1) | (151) |
| Net income | - | - | - | 297 | - | - | 297 | 4 | 301 |
| Total income and expenses recognized directly through equity | - | - | - | 29 | (132) | - | (103) | (3) | (106) |
| Comprehensive income | - | - | - | 326 | (132) | - | 194 | 1 | 195 |
| At 30 June 2017 | 758 | 1 212 | 689 | 1,427 | 169 | (7) | 4,248 | 45 | 4,293 |
| (In millions of euros) | Share capital | Paid-in surplus | Hybrid bonds | Retained earnings | Translation adjustments | Treasury shares | Shareholders' equity – Group share | Non-controlling interests | Shareholders' equity |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| At 1 January 2016 | 745 | 1,172 | 689 | 1,003 | 294 | (3) | 3,900 | 49 | 3,949 |
| Cash dividend | - | - | - | (143) | - | - | (143) | (1) | (144) |
| Issuance of share capital | 11 | 35 | - | - | - | - | 46 | - | 46 |
| Purchase of treasury shares | - | - | - | - | - | (6) | (6) | - | (6) |
| Grants of treasury shares to employees | - | - | - | (4) | - | 4 | - | - | - |
| Share-based payments | - | - | - | 7 | - | - | 7 | - | 7 |
| Other | - | - | - | - | - | - | - | - | - |
| Transactions with shareholders | 11 | 35 | - | (140) | - | (2) | (96) | (1) | (97) |
| Net income | - | - | - | 245 | - | - | 245 | 4 | 249 |
| Total income and expenses recognized directly through equity | - | - | - | (8) | (40) | - | (48) | (4) | (52) |
| Comprehensive income | - | - | - | 237 | (40) | - | 197 | - | 197 |
| At 30 June 2016 | 756 | 1,207 | 689 | 1,100 | 254 | (5) | 4,001 | 48 | 4,049 |
Condensed consolidated interim financial statements at 30 June 2017
A. HIGHLIGHTS
A.1 Portfolio management
In March 2017 the Group announced that it had completed the sale to INEOS of its 50% stake in Oxochimie, their oxo alcohols manufacturing joint venture, and the associated business assets.
A.2 Other highlights
On 11 April 2017 Arkema completed a €700 million bond issue with a ten-year maturity at a coupon of 1.50%. This operation enabled the Group to refinance and extend the average maturity of its financial resources, taking advantage of favourable market conditions.
A €200 million tap issue was carried out on 23 June 2017.
B. ACCOUNTING POLICIES
Arkema is a French limited liability company (société anonyme) with a Board of Directors, subject to the provisions of book II of the French Commercial Code and all other legal provisions applicable to French commercial companies.
The Company's head office is at 420 rue d'Estienne d'Orves, 92700 Colombes (France). It was incorporated on 31 January 2003 and the shares of Arkema have been listed on the Paris stock exchange (Euronext) since 18 May 2006.
Basis for preparation
The Group's condensed consolidated interim financial statements at 30 June 2017 were prepared under the responsibility of the Chairman and CEO of Arkema and were approved by the Board of Directors of Arkema on 1 August 2017.
The condensed consolidated interim financial statements at 30 June 2017 were prepared in compliance with IAS 34 "Interim financial reporting" and established in accordance with the IFRSs (International Financial Reporting Standards) issued by the IASB (International Accounting Standards Board) and IFRSs newly adopted by the European Union at 30 June 2017. As condensed interim financial statements, they do not incorporate all of the disclosures required in full financial statements and must thus be read in conjunction with the consolidated financial statements for the year ended 31 December 2016.
The accounting framework and standards adopted by the European Union can be consulted on the following website: https://ec.europa.eu/info/law/international-accounting-standards-regulation-ec-no-1606-2002.
18
Condensed consolidated interim financial statements at 30 June 2017
Changes in IFRSs and interpretations
The accounting policies applied in preparing the condensed consolidated interim financial statements at 30 June 2017 are identical to those used in the consolidated financial statements at 31 December 2016, except for IFRS standards, amendments and interpretations that are obligatorily applicable for accounting periods commencing on or after 1 January 2017 (and which had not been applied early by the Group), namely:
| Amendments to IAS 12 | Recognition of deferred tax assets for unrealised losses | Not adopted by the European Union at 30 June 2017 |
|---|---|---|
| Amendments to IAS 7 | Disclosure initiative | Not adopted by the European Union at 30 June 2017 |
| Annual improvements to IFRS standards 2014–2016 cycle | Not adopted by the European Union at 30 June 2017 |
Application of these amendments has no impact on the financial statements at 30 June 2017.
The standards, amendments and interpretations published by the IASB and the IFRS IC (IFRS Interpretations Committee) which were not yet in force for years beginning on or after 1 January 2017 and have not been applied early by the Group, are:
| Amendments to IFRS 9 and IFRS 7 | Mandatory effective date and transition disclosures | Not adopted by the European Union at 30 June 2017 |
|---|---|---|
| Amendments to IFRS 9 | Hedge accounting and amendments to IFRS 9, IFRS 7 and IAS 39 | Not adopted by the European Union at 30 June 2017 |
| Amendments to IFRS 10 and IAS 28 | Sale or contribution of assets between an investor and its associate/joint venture | Not adopted by the European Union at 30 June 2017 |
| Amendments to IFRS 2 | Classification and measurement of share-based payment transactions | Not adopted by the European Union at 30 June 2017 |
| IFRS 9 | Financial instruments | Adopted by the European Union on 29 November 2016 |
| IFRS 15 | Revenue from contracts with customers | Adopted by the European Union on 29 October 2016 |
| Clarifications to IFRS 15 | Revenue from contracts with customers | Not adopted by the European Union at 30 June 2017 |
| IFRS 16 | Leases | Not adopted by the European Union at 30 June 2017 |
| IFRIC 22 | Foreign currency transactions and advance consideration | Not adopted by the European Union at 30 June 2017 |
| IFRIC 23 | Uncertainty over Income tax treatments (IAS12) | Not adopted by the European Union at 30 June 2017 |
Use of assumptions
Preparation of the condensed consolidated interim financial statements in accordance with IFRS requires Group management to make estimates and determine assumptions that can have an impact on the amounts recognized in assets and liabilities at the balance sheet date, and have a corresponding impact on the income statement. Management made its estimates and determined its assumptions on the basis of past experience and taking into account different factors considered to be reasonable for the valuation of assets and liabilities. Use of different assumptions could have a material effect on these valuations. The disclosures provided concerning contingent assets and liabilities and off-balance sheet commitments at the date of preparation of the condensed consolidated interim financial statements also involve the use of estimates.
Impact of seasonality
The Group's standard pattern of business shows seasonality effects. Various characteristics contribute to these effects:
- demand for products manufactured by the Group is generally lower in the summer months (July-August) and in December, notably as a result of the slowdown in industrial activity during these months, particularly in France and the rest of Europe;
Condensed consolidated interim financial statements at 30 June 2017
- in some of the Group's businesses, particularly those serving the paints and coatings as well as the refrigeration and air-conditioning markets, sales are generally higher in the first half of the year than in the second half. By contrast, in Specialty Adhesives (Bostik), both halves of the year are more balanced;
- the major multi-annual maintenance turnarounds at the Group's production plants also have an impact on seasonality, and tend in general to be carried out in the second half of the year.
These seasonal effects in the past are not necessarily representative of future trends, but can have a material effect on the variations in results and working capital from one quarter of the year to another.
20
Condensed consolidated interim financial statements at 30 June 2017
C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Information by business segment
As required by IFRS 8, "Operating Segments", segment information for the Group is presented in accordance with the business segments identified in the internal reports that are regularly reviewed by general management in order to allocate resources and assess financial performance.
The Arkema Group has three business segments: High Performance Materials, Industrial Specialties and Coating Solutions. Three members of the Executive Committee supervise these segments; they report directly to the Chairman and CEO, the Group's chief operating decision-maker as defined by IFRS 8, and are in regular contact with him for the purpose of discussing their sector's operating activity, financial results, forecasts and plans.
The content of the business segments is as follows:
- High Performance Materials includes the following Business Lines:
- Specialty Adhesives (Bostik),
- Technical Polymers, comprising specialty polyamides and PVDF,
- Performance Additives, comprising the filtration and adsorption (CECA) activities, organic peroxides and photocure resins (Sartomer).
High Performance Materials provide innovative solutions with high value added, used in varied sectors such as transport, oil extraction, renewable energies (photovoltaics, lithium-ion batteries), consumer goods (beauty products, sports equipment, packaging, etc), electronics, construction, coatings and water treatment.
- Industrial Specialties groups the following Business Lines:
- Thiochemicals,
- Fluorochemicals,
- PMMA,
- Hydrogen Peroxides.
These integrated industrial niche markets on which the Arkema Group is among the world leaders concern products used in several industrial sectors such as production of cold (refrigeration and air conditioning), petrochemicals, refining, paper pulp, animal nutrition, electronics and the automotive industry.
- Coating Solutions comprises the following Business Lines:
- Acrylics,
- Coatings Resins and Additives, comprising the coatings resins and Coatex rheological additives activities.
This segment proposes solutions for decorative paints, industrial coatings, adhesives and high-growth acrylic applications (superabsorbers for disposable nappies, water treatment, oil and gas extraction).
Functional and financial activities which cannot be directly allocated to operational activities (notably certain research costs and central costs) are brought together in a Corporate segment.
Operating income and assets are allocated between business segments prior to inter-segment adjustments. Sales between segments take place at market prices.
21
Condensed consolidated interim financial statements at 30 June 2017
1st half 2017
| (In millions of euros) | High Performance Materials | Industrial Specialties | Coating Solutions | Corporate | Total |
|---|---|---|---|---|---|
| Non-Group sales | 1,966 | 1,345 | 1,024 | 15 | 4,350 |
| Inter-segment sales | 3 | 74 | 37 | - | |
| Total sales | 1,969 | 1,419 | 1,061 | 15 | |
| EBITDA | 340 | 316 | 138 | (41) | 753 |
| Depreciation and amortization | (78) | (89) | (55) | (1) | (223) |
| Recurring operating income | 262 | 227 | 83 | (42) | 530 |
| Other income and expenses | (31) | 2 | 0 | (1) | (30) |
| Operating income | 231 | 229 | 83 | (43) | 500 |
| Equity in income of affiliates | 1 | (1) | - | - | 0 |
| Intangible assets and property, plant, and equipment additions | 72 | 48 | 27 | 5 | 152 |
| Of which: Recurring capital expenditure | 57 | 48 | 27 | 5 | 137 |
1st half 2016
| (In millions of euros) | High Performance Materials | Industrial Specialties | Coating Solutions | Corporate | Total |
|---|---|---|---|---|---|
| Non-Group sales | 1,747 | 1,195 | 889 | 14 | 3,845 |
| Inter-segment sales | 9 | 60 | 29 | - | |
| Total sales | 1,756 | 1,255 | 918 | 14 | |
| EBITDA | 314 | 263 | 113 | (47) | 643 |
| Depreciation and amortization | (77) | (86) | (59) | (1) | (223) |
| Recurring operating income | 237 | 177 | 54 | (48) | 420 |
| Other income and expenses | (21) | (2) | 1 | 21 | (1) |
| Operating income | 216 | 175 | 55 | (27) | 419 |
| Equity in income of affiliates | 1 | 5 | - | - | 6 |
| Intangible assets and property, plant, and equipment additions | 66 | 72 | 25 | 5 | 168 |
| Of which: Recurring capital expenditure | 66 | 52 | 25 | 5 | 148 |
- Information by geographical area
Non-Group sales are presented on the basis of the geographical location of customers.
| 1st half 2017
(In millions of euros) | France | Rest of Europe | NAFTA(1) | Asia | Rest of the world | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Non-Group sales | 352 | 1,289 | 1,437 | 1,089 | 183 | 4,350 |
| 1st half 2016
(In millions of euros) | France | Rest of Europe | NAFTA(1) | Asia | Rest of the world | Total |
| Non-Group sales | 335 | 1,101 | 1,304 | 918 | 187 | 3,845 |
(1) NAFTA: USA, Canada, Mexico
Condensed consolidated interim financial statements at 30 June 2017
3. Other income and expenses
| 1st half 2017 | 1st half 2016 | |||||
|---|---|---|---|---|---|---|
| (In millions of euros) | Expenses | Income | Net | Expenses | Income | Net |
| Restructuring and environment | (4) | 1 | (3) | (3) | - | (3) |
| Goodwill impairment | - | - | - | - | - | - |
| Asset impairment (other than goodwill) | 0 | 1 | 1 | - | - | - |
| Litigation and claims | 0 | - | 0 | - | - | - |
| Gains (losses) on sales and purchases of assets | (7) | 2 | (5) | (5) | - | (5) |
| Depreciation and amortization related to purchase price allocations following acquisition of businesses | (23) | - | (23) | (19) | (19) | |
| Other | 0 | - | 0 | - | 26 | 26 |
| Total other income and expenses | (34) | 4 | (30) | (27) | 26 | (1) |
In the first half of 2017, gains and losses on sales and purchases of assets principally comprise €(7) million related to the acquisition of Den Braven, including €(5) million resulting from revaluation of inventories (see Note 6, Business combination). Depreciation and amortization related to revaluation of tangible and intangible assets amount to €19 million for the acquisition of Bostik and €4 million for the acquisition of Den Braven.
In the first half of 2016, depreciation and amortization related to revaluation of tangible and intangible assets for the purpose of allocation of the acquisition price of Bostik amounted to €19 million. Other income mainly included the financial consequences of the discontinuation of the Chairman and CEO's complementary defined-benefit pension plan from 7 June 2016, and the final phase of pension plan outsourcing in the Netherlands.
4. Adjusted net income
Net income - Group share may be reconciled to adjusted net income as follows:
| (In millions of euros) | Notes | 1st half 2017 | 1st half 2016 |
|---|---|---|---|
| Adjusted net income | 319 | 240 | |
| Other income and expenses | (C3) | (30) | (1) |
| Taxes on other income and expenses | 8 | 6 | |
| Non-current taxation | - | - | |
| Net income - Group share | 297 | 245 |
Condensed consolidated interim financial statements at 30 June 2017
5. Income taxes
The income tax expense is broken down as follows:
| (In millions of euros) | 1^{st} half 2017 | 1^{st} half 2016 |
|---|---|---|
| Current income taxes | (145) | (127) |
| Deferred income taxes | (3) | 1 |
| Total income taxes | (148) | (126) |
The income tax expense amounts to €148 million at 30 June 2017, including €7 million for the CVAE and €5 million relating to the additional income tax contribution due on distributed income (compared with €126 million at 30 June 2016, including €7 million for the CVAE and €4 million relating to the additional income tax contribution due on distributed income).
6. Business combination
On 1 December 2016 the Arkema Group finalized the acquisition of Den Braven for an enterprise value of €485 million and a final purchase price of €427 million.
In compliance with IFRS 3 (revised), the Group used the acquisition method for the accounting treatment of this operation.
The amount recorded in the financial statements at 30 June 2017 for the identifiable assets acquired and liabilities assumed at the acquisition date breaks down as follows:
| (In millions of euros) | Fair value acquired from Den Braven |
|---|---|
| Intangible assets | 167 |
| Property, plant and equipment | 63 |
| Deferred tax assets | 2 |
| Other non-current assets | 5 |
| TOTAL NON-CURRENT ASSETS | 237 |
| Inventories | 33 |
| Accounts receivable | 52 |
| Cash and cash equivalents | 90 |
| Other current assets | 4 |
| TOTAL CURRENT ASSETS | 179 |
| TOTAL ASSETS | 416 |
| Deferred tax liabilities | 47 |
| Provisions and other non-current liabilities | 1 |
| Non-current debt | 58 |
| TOTAL NON-CURRENT LIABILITIES | 106 |
| Accounts payable | 40 |
| Other current liabilities | 101 |
| TOTAL CURRENT LIABILITIES | 141 |
| FAIR VALUE OF NET ASSETS | 169 |
| GOODWILL | 258 |
Condensed consolidated interim financial statements at 30 June 2017
Intangible assets stated at fair value mainly consist of the Den Braven® brand, technologies and customer relations, the two latter assets being amortized over 15 years. The revalued inventories were consumed during the first half of 2017.
The expenses incurred for the entire operation have been recorded in Other income and expenses at the amount of €5 million of which €3 million were booked in 2016.
The resulting goodwill of €258 million is final. It principally comprises the expected synergies and the step-up in business activity thanks to geographical, technological and commercial complementarities between Bostik and Den Braven.
7. Earnings per share
| 1st half 2017 | 1st half 2016 | |
|---|---|---|
| Weighted average number of ordinary shares | 75,671,629 | 74,799,919 |
| Dilutive effect of stock options | 133,732 | 160,387 |
| Dilutive effect of free share grants | 67,418 | 59,553 |
| Weighted average number of potential ordinary shares | 75,872,779 | 75,019,859 |
Earnings per share is determined below:
| 1st half 2017 | 1st half 2016 | |
|---|---|---|
| Earnings per share (€) | 3.92 | 3.28 |
| Diluted earnings per share (€) | 3.91 | 3.27 |
Adjusted earnings per share is determined below:
| 1st half 2017 | 1st half 2016 | |
|---|---|---|
| Adjusted earnings per share (€) | 4.22 | 3.21 |
| Diluted adjusted earnings per share (€) | 4.20 | 3.20 |
8. Intangible assets
8.1 Goodwill
| (In millions of euros) | Gross book value | 30 June 2017
Accumulated amortization and impairment | Net book value | 31 December 2016
Net book value |
| --- | --- | --- | --- | --- |
| Goodwill | 2,083 | (537) | 1,546 | 1,703 |
Changes in the net book value of goodwill are as follows:
| Net book value (In millions of euros) | 30 June 2017 |
|---|---|
| At 1 January | 1,703 |
| Changes in scope | (118) |
| Translation adjustments | (39) |
| At 30 June | 1,546 |
The decrease in goodwill in the first half of 2017 essentially results from allocation of the goodwill on acquisition of Den Braven to tangible and intangible assets (see note 6. Business combination).
25
Condensed consolidated interim financial statements at 30 June 2017
8.2 Other intangible assets
| (In millions of euros) | Gross book value | 30 June 2017
Accumulated amortization and impairment | Net book value | 31 December 2016
Net book value |
| --- | --- | --- | --- | --- |
| Patents and technologies | 396 | (149) | 247 | 233 |
| Trademarks | 534 | (4) | 530 | 440 |
| Software and IT licences | 283 | (174) | 109 | 111 |
| Capitalized REACH costs | 47 | (18) | 29 | 29 |
| Other capitalized research expenses | 12 | (3) | 9 | 3 |
| Capitalized contracts | 297 | (239) | 58 | 63 |
| Asset rights | 69 | (28) | 41 | 43 |
| Customer relations | 95 | (10) | 85 | 52 |
| Other intangible assets | 31 | (16) | 15 | 12 |
| Intangible assets in progress | 91 | (18) | 73 | 88 |
| Total | 1,855 | (659) | 1,196 | 1,074 |
Changes in the net book value of intangible assets are as follows:
| Net book value (In millions of euros) | 30 June 2017 |
|---|---|
| At 1 January | 1,074 |
| Acquisitions | 16 |
| Amortization and impairment | (40) |
| Changes in scope | 165 |
| Translation adjustments | (20) |
| Reclassifications | 1 |
| At 30 June | 1,196 |
9. Property, plant and equipment
| (In millions of euros) | Gross book value | 30 June 2017 | | 31 December 2016
Net book value |
| --- | --- | --- | --- | --- |
| | | Accumulated amortization and impairment | Net book value | |
| Land and buildings | 1,851 | (1,166) | 685 | 729 |
| Complex industrial facilities | 3,502 | (2,779) | 723 | 774 |
| Other property, plant and equipment | 2,909 | (2,122) | 787 | 844 |
| Construction in progress | 276 | (10) | 266 | 305 |
| Total | 8,538 | (6,077) | 2,461 | 2,652 |
Condensed consolidated interim financial statements at 30 June 2017
Changes in the net book value of property, plant and equipment are as follows:
| Net book value (In millions of euros) | 30 June 2017 |
|---|---|
| At 1 January | 2,652 |
| Acquisitions | 121 |
| Amortization and impairment | (206) |
| Disposals | (2) |
| Changes in scope | (1) |
| Translation adjustments | (101) |
| Reclassifications | (2) |
| At 30 June | 2,461 |
10. Shareholders' equity
At 30 June 2017, Arkema's share capital amounts to €758 million, divided into 75,773,865 shares with a nominal value of 10 euros.
| Number of shares at 1 January 2016 | 74,472,101 |
|---|---|
| Issuance of shares following the capital increase reserved for employees | 998,072 |
| Issuance of shares following the exercise of subscription options | 110,952 |
| Number of shares at 30 June 2016 | 75,581,125 |
| Issuance of shares following the exercise of subscription options | 136,822 |
| Number of shares at 31 December 2016 | 75,717,947 |
| Number of shares at 1 January 2017 | 75,717,947 |
| Issuance of shares following the exercise of subscription options | 55,918 |
| Number of shares at 30 June 2017 | 75,773,865 |
- Changes in share capital
Following the exercise of 55,918 share subscription options, the Company carried out a capital increase in the total nominal amount of €1 million.
- Treasury shares
The Company bought back 45,865 treasury shares during the first half of 2017.
In May 2017, the Arkema Group definitively granted 20,246 free shares to its employee in application of plans 2014-1, 3 and 2016-3.
| Number of treasury shares at 1 January 2016 | 36,925 |
|---|---|
| Repurchases of treasury shares | 100,617 |
| Grants of treasury shares | (71,719) |
| Number of treasury shares at 31 December 2016 | 65,823 |
| Number of treasury shares at 1 January 2017 | 65,823 |
| Repurchases of treasury shares | 45,865 |
| Grants of treasury shares | (20,246) |
| Number of treasury shares at 30 June 2017 | 91,442 |
Condensed consolidated interim financial statements at 30 June 2017
- Dividends
The combined shareholders' general meeting of 23 May 2017 approved the distribution of a €2.05 dividend per share in respect of the 2016 financial year, or a total amount of €155 million. The dividend was paid out on 29 May 2017.
11. Provisions for pensions and other employee benefits
| (In millions of euros) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Pension obligations | 352 | 366 |
| Healthcare and similar coverage | 90 | 93 |
| Post-employment benefits | 442 | 459 |
| Long service awards | 55 | 56 |
| Other long-term benefits | 9 | 5 |
| Other long-term benefits | 64 | 61 |
| Provisions for pensions and other employee benefits | 506 | 520 |
The discount rates used by the Arkema Group are as follows:
| Pension obligations, healthcare and similar coverage | Europe (excl. UK) | UK | USA |
|---|---|---|---|
| At 30 June 2017 | 2.05% | 2.60% | 3.90% |
| At 31 December 2016 | 1.70% | 2.60% | 4.25% |
The present value of benefit obligations at the end of 2016 has been adjusted at 30 June 2017 on the basis of sensitivity analysis tables prepared by the Group's external actuaries in the context of the full year 2016 closing, to take account of the change in interest rates over the half-year. The fair value of plan assets has also been reassessed on the basis of new valuations at 30 June 2017. The effects of the change in discount rates and the revaluation of assets are included in actuarial gains and losses for the period.
The change in net provisions for post-employment benefits over the first half-year is as follows:
| (In millions of euros) | Pension obligations | Healthcare and similar coverage | Total post-employment benefits |
|---|---|---|---|
| Net liability (asset) at 1 January | 366 | 93 | 459 |
| Provision recognized in liabilities | 366 | 93 | 459 |
| Amount recognized in assets | - | - | - |
| Operating expense for the period | 8 | 0 | 8 |
| Net interest expense | 5 | 1 | 6 |
| Net contributions and benefits paid by the employer | (10) | (1) | (11) |
| Liquidations | 0 | - | 0 |
| Other * | (11) | (4) | (15) |
| Actuarial gains and losses recognized in shareholders' equity | (6) | 1 | (5) |
| Net liability (asset) at 30 June | 352 | 90 | 442 |
| Provision recognized in liabilities | 352 | 90 | 442 |
| Amount recognized in assets | 0 | - | 0 |
- Other items essentially consist of translation adjustments.
Condensed consolidated interim financial statements at 30 June 2017
12. Other provisions and other non-current liabilities
12.1. Other non-current liabilities
Other non-current liabilities amount to €43 million at 30 June 2017 as against €45 million at 31 December 2016.
12.2. Other provisions
| (In millions of euros) | Environmental contingencies | Restructuring | Other | Total |
|---|---|---|---|---|
| At 1 January 2017 | 194 | 47 | 178 | 419 |
| Increases in provisions | 4 | 0 | 20 | 24 |
| Reversals from provisions on use | (5) | (6) | (20) | (31) |
| Reversals of unused provisions | - | - | (3) | (3) |
| Changes in scope | - | - | 0 | 0 |
| Translation adjustments | (6) | (0) | (6) | (12) |
| Other | - | - | (0) | (0) |
| At 30 June 2017 | 187 | 41 | 169 | 397 |
In addition, certain provisions are covered by non-current assets (receivables, deposits):
| (In millions of euros) | Environmental contingencies | Restructuring | Other | Total |
|---|---|---|---|---|
| Total provisions at 30 June 2017 | 187 | 41 | 169 | 397 |
| Portion of provisions covered by receivables or deposits | 36 | - | 12 | 48 |
| Deferred tax asset related to amounts covered by the Total indemnity | 21 | - | 0 | 21 |
| Provisions at 30 June 2017 net of non-current assets | 130 | 41 | 157 | 328 |
| For information: Provisions at 1 January 2017 net of non-current assets | 131 | 47 | 165 | 343 |
12.2.1 Provisions for environmental contingencies
Provisions for environmental contingencies are recognized to cover expenses related to soil and water table clean-up, mainly:
- in France for €83 million (€81 million at 31 December 2016),
- in the United States for €78 million (€88 million at 31 December 2016), of which €56 million in respect of former industrial sites covered 100% by the Total group indemnity (receivable recognized in "Other non-current assets" for an amount of €36 million and €21 million recognized in deferred tax assets) (see note C16.2 "Off-balance sheet commitments / Commitments received").
12.2.2 Restructuring provisions
Restructuring provisions are mainly in respect of restructuring measures in France for €28 million (€33 million at 31 December 2016), in Europe outside France for €7 million (€8 million at 31 December 2016) and in the United States for €5 million (€6 million at 31 December 2016).
12.2.3 Other provisions
Other provisions amount to €169 million and mainly comprise:
- provisions for labour litigation for €52 million (€53 million at 31 December 2016),
- provisions for commercial litigation and warranties for €53 million (€50 million at 31 December 2016),
- provisions for tax litigation for €36 million (€36 million at 31 December 2016),
- provisions for other risks for €28 million (€39 million at 31 December 2016).
29
Condensed consolidated interim financial statements at 30 June 2017
13. Liabilities and contingent liabilities
Liabilities and contingent liabilities are described in note C21 to the consolidated financial statements at 31 December 2016. There was no development in liabilities and contingent liabilities during the first half of 2017 with an actual or potential significant effect on the Group's consolidated financial statements.
14. Debt
14.1 Analysis of net debt by category
Group net debt amounts to €1,471 million at 30 June 2017, taking account of cash and cash equivalents of €1,499 million.
| (In millions of euros) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Bonds | 2,219 | 1,328 |
| Finance lease obligations | 1 | 1 |
| Bank loans | 22 | 27 |
| Other non-current debt | 26 | 21 |
| Non-current debt | 2,268 | 1,377 |
| Bonds | 500 | 500 |
| Finance lease obligations | - | 0 |
| Syndicated credit facility | - | - |
| Negotiable European Commercial Paper | - | - |
| Other bank loans | 175 | 194 |
| Other current debt | 27 | 34 |
| Current debt | 702 | 728 |
| Debt | 2,970 | 2,105 |
| Cash and cash equivalents | 1,499 | 623 |
| Net debt | 1,471 | 1,482 |
Bonds
At 30 June 2017, the fair values of the bonds issued by the Group are as follows:
- €500 million bond maturing in October 2017: €506 million,
- €480 million bond maturing in April 2020: €530 million,
- €150 million bond (issued as Euro Medium Term Notes (EMTN)) maturing in December 2023: €169 million,
- €700 million bond (issued as Euro Medium Term Notes (EMTN)) maturing in January 2025: €720 million,
- €900 million bond (issued as Euro Medium Term Notes (EMTN)) maturing in April 2027: €899 million.
14.2 Analysis of debt by currency
The Arkema Group's debt is mainly denominated in euros.
| (In millions of euros) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Euros | 2,768 | 1,871 |
| US Dollars | 8 | 12 |
| Chinese Yuan | 168 | 188 |
| Other | 26 | 34 |
| Total | 2,970 | 2,105 |
Part of the debt in euros is converted through swaps to the accounting currency of internally-financed subsidiaries, in line with the Group's policy; one third of the Group's Net debt is therefore in US dollars.
Condensed consolidated interim financial statements at 30 June 2017
14.3 Analysis of debt by maturity
The breakdown of debt, including interest costs, by maturity is as follows:
| (In millions of euros) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Less than 1 year | 750 | 765 |
| Between 1 and 2 years | 56 | 42 |
| Between 2 and 3 years | 535 | 43 |
| Between 3 and 4 years | 36 | 522 |
| Between 4 and 5 years | 36 | 23 |
| More than 5 years | 1,870 | 922 |
| Total | 3,283 | 2,317 |
15. Share-based payments
15.1 Stock options
The Board of Directors has decided not to introduce any further stock option plans.
Movements in the stock option plans granted in previous years and still outstanding at 30 June 2017 are as follows:
| Plan | Total number of options granted * | Exercise price* | Number of options exercised in 1st half 2017 | Number of options cancelled in 1st half 2017 | Total number of options exercised | Total number of options outstanding | Final year for exercising options |
|---|---|---|---|---|---|---|---|
| 2010-1 | 230,044 | 29.33 | 25,085 | - | 183,859 | 39,185 | 2018 |
| 2010-2 | 233,513 | 29.33 | 24,033 | - | 151,626 | 59,713 | 2018 |
| 2011-1 | 109,082 | 65.92 | 5,195 | - | 54,614 | 54,468 | 2019 |
| 2011-2 | 109,082 | 65.92 | 1,605 | - | 19,474 | 89,608 | 2019 |
- after adjustment following the capital increase with preferential subscription rights of November 2014
The amount of the IFRS 2 expense recognized in respect of stock options at 30 June 2017 was nil (also nil at 30 June 2016).
15.2 Free share grants
Movements in the free share grant plans awarded up until 30 June 2017 are as follows:
| Plan | Grant date | Vesting period | Conservation period | Total number of free shares granted | Number of shares subject to performance conditions | Fair value (euros per share) | Number of shares definitively granted in 1st half 2017 | Number of shares cancelled in 1st half 2017 | Total number of shares still to be granted at 30 June 2017 |
|---|---|---|---|---|---|---|---|---|---|
| 2013 | 6 Nov 2013 | 4 years | - | 250,000 | 182,810 | 51.60 | - | 150 | 243,590 |
| 2014-1, 3 | 6 May 2014 | 3-4 years | 0-3 years | 17,118 | - | 53.63 | 3,579 | 40 | 13,144 |
| 2014-2 | 13 Nov 2014 | 4 years | - | 275,000 | 203,535 | 33.41 | - | 250 | 271,875 |
| 2015-1 | 9 Nov 2015 | 4 years | - | 285,525 | 285,525 | 42.31 | - | 650 | 282,835 |
| 2015-2 | 9 Nov 2015 | 4 years | - | 59,595 | - | 42.31 | - | 80 | 58,575 |
| 2016-1, 2 | 10 May 2016 | 3-4 years | 0-3 years | 43,278 | - | 22.91-39.70 | - | - | 43,278 |
| 2016-3 | 7 Jun 2016 | 1-3 years | 2 years | 50,000 | - | 41.04-53.53 | 16,667 | - | 33,333 |
| 2016-4 | 9 Nov 2016 | 3 years | 2 years | 235,835(1) | 226,040 | 47.31 | - | 600 | 235,235 |
| 2016-5 | 9 Nov 2016 | 4 years | - | 122,080(2) | 112,860 | 50.01 | - | 260 | 121,820 |
(1) May be raised to 258,439 in the event of outperformance
(2) May be raised to 133,366 in the event of outperformance
The amount of the IFRS 2 expense recognized in respect of free shares at 30 June 2017 is €7 million (€7 million at 30 June 2016).
31
Condensed consolidated interim financial statements at 30 June 2017
16. Off-balance sheet commitments
16.1 Commitments given
16.1.1 Off-balance sheet commitments given in the Group's operating activities
The main commitments given are summarized in the table below:
| (In millions of euros) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Guarantees granted | 76 | 73 |
| Comfort letters | - | - |
| Contractual guarantees | 10 | 3 |
| Customs and excise guarantees | 14 | 14 |
| Total | 100 | 90 |
Guarantees granted are mainly bank guarantees in favour of local authorities and public bodies (state agencies, environmental agencies) in respect of environmental obligations or concerning classified sites.
16.1.2 Contractual commitments related to the Group's operating activities
- Irrevocable purchase commitments
In the normal course of business, the Arkema Group has signed multi-year purchase agreements for raw materials and energy for the operational requirements of its factories, in order to guarantee the security and continuity of supply. Signature of such contracts over initial periods generally comprised between 1 and 10 years is a normal practice for companies in the Group's business sector in order to cover their needs.
These purchase commitments were valued taking into account, on a case-by-case basis, the Arkema Group's financial commitment to its suppliers, as certain of these contracts include clauses which oblige the Group to take delivery of the minimum volumes as set out in the contract or, otherwise, to pay financial compensation to the supplier. Depending on the case, these commitments are reflected in the purchase agreements in the form of notice periods, indemnification to be paid to the supplier in case of early termination of the contract or "take or pay" clauses.
The total amount of the Group's financial commitments is €513 million at 30 June 2017, maturing as follows:
| (In millions of euros) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| 2017 | 173 | 190 |
| 2018 | 80 | 63 |
| 2019 | 72 | 54 |
| 2020 | 53 | 34 |
| 2021 until expiry of the contracts | 135 | 68 |
| Total | 513 | 409 |
- Lease commitments
In the context of its business, the Arkema Group has signed lease contracts, of which the majority are operating lease agreements. Lease agreements signed by the Group are mainly in respect of property rental (head offices, land) and transportation equipment (rail cars, containers).
32
Condensed consolidated interim financial statements at 30 June 2017
The amounts presented in the table below correspond to the future minimum payments that will need to be made in accordance with these contracts (only the irrevocable portion of future lease payments has been valued).
| Non-capitalized leases (In millions of euros) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| 2017 | 14 | 26 |
| 2018 | 22 | 23 |
| 2019 | 19 | 19 |
| 2020 | 16 | 16 |
| 2021 and beyond | 43 | 45 |
| Non-discounted value of future lease payments | 114 | 129 |
16.1.3 Off-balance sheet commitments related to changes in the scope of consolidation
Warranties related to sales of businesses
When selling businesses, the Arkema Group has sometimes granted the purchaser warranties in respect of unrecorded liabilities. In most cases these warranties are capped and granted for a limited period of time. They are also limited in terms of their coverage to certain types of expenses or litigation. In the majority of cases, they cover risks of occurrence of environmentally related expenses or litigation.
The cumulative residual amount of capped warranties in respect of unrecorded liabilities granted by the Group amounts to €102 million at 30 June 2017 (€132 million at 31 December 2016). These amounts are stated net of provisions recognized in the balance sheet in respect of such warranties.
16.1.4 Off-balance sheet commitments related to Group financing
These commitments are described in note C22 to the consolidated financial statements at 31 December 2016 "Debt".
16.2 Commitments received
Commitments received from Total in 2006
In connection with the Spin-Off of Arkema's Businesses, Total S.A. and certain Total companies extended certain indemnities, or assumed certain obligations, for the benefit of the Arkema Group. Some are still in application while others terminated during 2017. The warranties and commitments concerned are described below, and relate to (i) actual or potential environmental liabilities of the Group arising from certain sites in France, Belgium and the United States, the operations on which in the majority of cases have ceased, (ii) tax matters.
16.2.1 Obligations and indemnities given in respect of Former Industrial Sites
In order to cover certain risks relating to certain industrial sites situated in France, Belgium and the United States in respect of which the Group is or could be held liable, and where, for the most part, operations have ceased (the Former Industrial Sites), Total S.A. companies have entered into indemnity and service agreements with Arkema or its subsidiaries.
Pursuant to these agreements, the obligations and environmental responsibilities associated with these former industrial sites in France and at Rieme in Belgium were transferred to Total S.A. group companies.
Agreement relating to certain Former Industrial Sites located in the United States
In March 2006, Arkema Amériques SAS completed the acquisition from Elf Aquitaine Inc. and Arkema France of Arkema Delaware Inc., a holding company for most of the Group's operations in the United States. The negotiated terms of the stock purchase agreement among Elf Aquitaine Inc., Legacy Site Services and Arkema Amériques SAS, dated 7 March 2006 (the Arkema Delaware Main SPA) required Elf Aquitaine Inc. to use $270 million to capitalize a new subsidiary, Legacy Site Services LLC, that performs remediation services, and indemnify the Group against the cost of environmental contamination liabilities incurred by the Group entities covered by this indemnity, and related personal injury and property damage claims associated with contamination at 35 of the Group's closed and formerly operated facilities and 24 third party sites where the Group's liability arises solely out of waste shipments from the sites other than currently operated
33
Condensed consolidated interim financial statements at 30 June 2017
sites. In exchange for this indemnification, Arkema Amériques SAS agreed to grant to Legacy Site Services LLC control over remediation activities and the defence of claims relating to contamination liabilities at these facilities and sites.
The sites currently operated by the Group are excluded from this indemnity, as are sites that received waste associated with current operations of the Group, certain sites where no significant restoration work is currently underway or anticipated, and other sites where the Group could be held liable for environmental pollution. These other sites include, for example, sites where remediation has been conducted in the past or where future remediation costs or liability are believed to be insignificant or non-existent based upon information available at the time when the indemnity was entered into. Arkema Amériques SAS has waived any claims against Legacy Site Services LLC, Total S.A. or their respective subsidiaries in respect of the sites not covered by the indemnity.
The Legacy Site Services LLC indemnity covers the costs of restoration and clean-up of the soil and groundwater, the costs of related defence and settlement costs and personal injury, property and natural resource damages. The indemnity does not cover liabilities unrelated to site remediation, in particular liabilities in respect of products manufactured on the said sites, liability arising from certain dangerous and potentially dangerous substances, particularly asbestos exposure and criminal liability.
The indemnity described above is capped at $270 million. The amount received by Arkema under this indemnity amounts to $96 million. At the same time as the stock purchase agreement and the indemnity described above, Legacy Site Services LLC and Arkema Inc. entered into a supplemental contamination indemnity agreement pursuant to which Legacy Site Services LLC will indemnify the liabilities of the Group in excess of $270 million, on the same terms, for the same sites and subject to the same exceptions as the indemnity described in the preceding paragraph.
16.2.2 Tax indemnity granted by Total S.A.
The final litigation fully covered by the Total tax indemnity was settled during the first half of 2017, and this Total tax indemnity is now terminated.
- Subsequent events
Condensed consolidated interim financial statements at 30 June 2017
D. SCOPE OF CONSOLIDATION AT 30 JUNE 2017
(a) Companies sold in 2017
(b) Companies merged in 2017
(c) Companies liquidated in 2017
The percentage of control indicated below also corresponds to the Group's ownership interest.
| Altuglas International Denmark A/S | Denmark | 100.00 | FC |
|---|---|---|---|
| Altuglas International Mexico Inc. | United States | 100.00 | FC |
| Altuglas International SAS | France | 100.00 | FC |
| American Acryl LP | United States | 50.00 | JO |
| American Acryl NA LLC | United States | 50.00 | JO |
| Arkema | South Korea | 100.00 | FC |
| Arkema | France | 100.00 | FC |
| Arkema Afrique SAS | France | 100.00 | FC |
| Arkema Amériques SAS | France | 100.00 | FC |
| Arkema Asie SAS | France | 100.00 | FC |
| Arkema BV | Netherlands | 100.00 | FC |
| Arkema Canada Inc. | Canada | 100.00 | FC |
| Arkema Changshu Chemicals Co. Ltd | China | 100.00 | FC |
| Arkema Changshu Fluorochemical Co. Ltd | China | 100.00 | FC |
| Arkema Chemicals India Private Ltd. | India | 100.00 | FC |
| Arkema Changshu Polyamides Co. Ltd | China | 100.00 | FC |
| Arkema China Investment Co. Ltd. | China | 100.00 | FC |
| Arkema Coating Resins Malaysia Sdn. Bhd. | Malaysia | 100.00 | FC |
| Arkema Coatings Resins UK | United Kingdom | 100.00 | FC |
| Arkema Co. Ltd | Hong Kong | 100.00 | FC |
| Arkema Daikin Advanced Fluorochemicals Co. Ltd | China | 60.00 | JO |
| Arkema Delaware Inc. | United States | 100.00 | FC |
| Arkema Europe | France | 100.00 | FC |
| Arkema France | France | 100.00 | FC |
| Arkema GmbH | Germany | 100.00 | FC |
| Arkema Hydrogen Peroxide Co. Ltd. Shanghai | China | 66.67 | FC |
| Arkema Inc. | United States | 100.00 | FC |
| Arkema Insurance Ltd | Ireland | 100.00 | FC |
| Arkema KK | Japan | 100.00 | FC |
| Arkema Kimya Sanayi ve Ticaret AS | Turkey | 100.00 | FC |
| Arkema Ltd. | United Kingdom | 100.00 | FC |
| Arkema Mexico SA de CV | Mexico | 100.00 | FC |
| Arkema Mexico Servicios SA de CV | Mexico | 100.00 | FC |
| Arkema PEKK Inc. | United States | 100.00 | FC |
| Arkema Peroxides India Private Limited | India | 100.00 | FC |
| Arkema Pte Ltd. | Singapore | 100.00 | FC |
| Arkema Pty Ltd. | Australia | 100.00 | FC |
| Arkema Quimica Ltda | Brazil | 100.00 | FC |
| Arkema Quimica SA | Spain | 100.00 | FC |
Condensed consolidated interim financial statements at 30 June 2017
| Arkema Shanghai Distribution Co. Ltd | China | 100.00 | FC | |
|---|---|---|---|---|
| Arkema Spar NL Limited Partnership | (c) | Canada | 100.00 | FC |
| Arkema sp Z.o.o | Poland | 100.00 | FC | |
| Arkema Srl | Italy | 100.00 | FC | |
| Arkema Taixing Chemicals | China | 100.00 | FC | |
| Arkema Thiochemicals Sdn Bhd | Malaysia | 86.00 | FC | |
| Arkema Yoshitomi Ltd. | Japan | 49.00 | SI | |
| Ato Findley Deutschland GmbH | Germany | 100.00 | FC | |
| Bostik AB (Sweden) | Sweden | 100.00 | FC | |
| Bostik AS | Estonia | 100.00 | FC | |
| Bostik Argentina | Argentina | 100.00 | FC | |
| Bostik AS (Denmark) | Denmark | 100.00 | FC | |
| Bostik AS (Norway) | Norway | 100.00 | FC | |
| Bostik Australia | Australia | 100.00 | FC | |
| Bostik Belux NV SA | Belgium | 100.00 | FC | |
| Bostik BV | Netherlands | 100.00 | FC | |
| Bostik Canada | Canada | 100.00 | FC | |
| Bostik Egypt For Production of Adhesives S.A.E | Egypt | 100.00 | FC | |
| Bostik Findley China Co Ltd. | China | 100.00 | FC | |
| Bostik Findley Malaysia Sdn.-Bhd. | Malaysia | 100.00 | FC | |
| Bostik GmbH | Germany | 100.00 | FC | |
| Bostik Holding Australia Ltd | Australia | 100.00 | FC | |
| Bostik Holding Hong Kong Ltd. | Hong Kong | 100.00 | FC | |
| Bostik Holding SA | France | 100.00 | FC | |
| Bostik Inc. | United States | 100.00 | FC | |
| Bostik India Private Ltd. | India | 100.00 | FC | |
| Bostik Industries Ltd. | Ireland | 100.00 | FC | |
| Bostik Korea Ltd. | South Korea | 100.00 | FC | |
| Bostik Ltd. | United Kingdom | 100.00 | FC | |
| Bostik Mexicana SA de CV | Mexico | 100.00 | FC | |
| Bostik Nederland BV | Netherlands | 100.00 | FC | |
| Bostik New Zealand | New Zealand | 100.00 | FC | |
| Bostik-Nitta Co. Ltd. | Japan | 66.00 | FC | |
| Bostik OOO | Russia | 100.00 | FC | |
| Bostik OY | Finland | 100.00 | FC | |
| Bostik Philippines Inc. | Philippines | 100.00 | FC | |
| Bostik Polska SP Z.O.O | Poland | 100.00 | FC | |
| Bostik SA | France | 100.00 | FC | |
| Bostik SA (Spain) | Spain | 100.00 | FC | |
| Bostik SIA | Latvia | 100.00 | FC | |
| Bostik Shanghai Management Co. Ltd. | China | 100.00 | FC | |
| Bostik (Thailand) Co. Ltd | Thailand | 100.00 | FC | |
| Bostik UAB | Lithuania | 100.00 | FC | |
| Bostik Vietnam Company Ltd | Vietnam | 100.00 | FC | |
| Ceca Belgium | Belgium | 100.00 | FC | |
| Ceca LC | (b) | France | 100.00 | FC |
Condensed consolidated interim financial statements at 30 June 2017
| Ceca SA | (b) | France | 100.00 | FC |
|---|---|---|---|---|
| Ceca Watan Saudi Arabia | Saudi Arabia | 51.00 | FC | |
| Cekomastik Kimya Sanayi Ve Ticaret A.S | Turkey | 100.00 | FC | |
| Changshu Coatex Additives Co. Ltd. | China | 100.00 | FC | |
| Changshu Haike Chemicals Co. Ltd. | China | 49.00 | FC | |
| CJ Bio Malaysia Sdn. Bhd. | Malaysia | 14.00 | SI | |
| Coatex Asia Pacific | South Korea | 100.00 | FC | |
| Coatex Central Eastern Europe sro | Slovakia | 100.00 | FC | |
| Coatex Inc. | United States | 100.00 | FC | |
| Coatex Latin America Industria et Comercio Ltda | Brazil | 100.00 | FC | |
| Coatex Netherlands BV | Netherlands | 100.00 | FC | |
| Coatex SAS | France | 100.00 | FC | |
| Daikin Arkema Refrigerants Asia Ltd. | Hong Kong | 40.00 | JV | |
| Daikin Arkema Refrigerants Trading Shanghai Co. Ltd. | China | 40.00 | JV | |
| DBEW Holding BV | Netherlands | 100.00 | FC | |
| Debratec GmbH | Germany | 100.00 | FC | |
| Den Braven Aerosols GmbH | Germany | 100.00 | FC | |
| Den Braven Beheer BV | Netherlands | 100.00 | FC | |
| Den Braven Belgium N.V. | Belgium | 100.00 | FC | |
| Den Braven Benelux BV | Netherlands | 100.00 | FC | |
| Den Braven East sp Z.o.o | Poland | 100.00 | FC | |
| Den Braven Endustriel | Turkey | 100.00 | FC | |
| Den Braven France Sarl | France | 100.00 | FC | |
| Den Braven Hellas SA | Greece | 100.00 | FC | |
| Den Braven Holding BV | Netherlands | 100.00 | FC | |
| Den Braven OG BV | Netherlands | 100.00 | FC | |
| Den Braven Productos Quim. Ldo. | Portugal | 100.00 | FC | |
| Den Braven Romania Srl | Romania | 100.00 | FC | |
| Den Braven Sealants Espana SL | Spain | 100.00 | FC | |
| Den Braven Sealants GmbH | Austria | 100.00 | FC | |
| Den Braven Sealants South Africa Pty Ltd | South Africa | 100.00 | FC | |
| Delaware Chemicals Corporation | United States | 100.00 | FC | |
| Distri Mark France SAS | France | 100.00 | FC | |
| Febex SA | Switzerland | 96.77 | FC | |
| Hebei Casda Biomaterials Co. Ltd | China | 100.00 | FC | |
| Ihsedu Agrochem Private Ltd | India | 24.90 | SI | |
| Jiangsu Bostik Adhesive Co. Ltd | China | 100.00 | FC | |
| Maquiladora General de Matamoros SA de CV | (b) | Mexico | 100.00 | FC |
| MEM BAUCHEMIE Gmbh | Germany | 100.00 | FC | |
| Michelet Finance, Inc. | United States | 100.00 | FC | |
| MLPC International | France | 100.00 | FC | |
| Mydrin Srl | Italy | 100.00 | FC | |
| Odor-Tech LLC | United States | 100.00 | FC | |
| Oxochimie | (a) | France | 50.00 | JO |
| Ozark Mahoning Company | United States | 100.00 | FC | |
| PT Bostik Indonesia | Indonesia | 100.00 | FC |
37
Condensed consolidated interim financial statements at 30 June 2017
| Sartomer Asia Limited | Hong Kong | 100.00 | FC |
|---|---|---|---|
| Sartomer Guangzhou Chemical Co. Ltd. | China | 100.00 | FC |
| Sartomer Shanghai Distribution Company Limited | China | 100.00 | FC |
| Seki Arkema | South Korea | 51.00 | FC |
| Siroflex Inc. | United States | 100.00 | FC |
| Siroflex Ltd | United Kingdom | 100.00 | FC |
| Société Marocaine des Colles | Morocco | 97.01 | FC |
| Sovereign Chemicals Ltd | United Kingdom | 100.00 | FC |
| Suzhou Hipro Polymers Co. Ltd | China | 100.00 | FC |
| Taixing Sunke Chemicals | China | 55.00 | JO |
| Tamer Endustriyel Madencilik Anonim Sirketi | Turkey | 50.00 | FC |
| Turkish Products, Inc. | United States | 100.00 | FC |
| Usina Fortaleza Industria E commercio de massa fina Ltda | Brazil | 100.00 | FC |
| Vetek | Argentina | 60.00 | FC |
| Viking chemical company | United States | 100.00 | FC |
| Zhuhai Bostik Adhesive Ltd | China | 100.00 | FC |
NB: FC: full consolidation
JO: joint operation – consolidated based on shares of assets, liabilities, income and expenses
JV: joint venture - consolidation by the equity method
SI: significant influence - consolidation by the equity method
38
III - DECLARATION BY THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT AT 30 JUNE 2017
I certify that, to the best of my knowledge, the condensed consolidated financial statements have been prepared in accordance with the applicable accounting standards, and give a fair view of the assets, liabilities, financial position and profit or loss of the Company and all its consolidated companies, and that the half-year activity report on pages 3 to 11 includes a fair review of the main events of the first six months of the year, their impact on the consolidated financial statements, the major transactions between related parties, and that it describes the main risks and uncertainties for the remaining six months of the financial year.
Colombes, 1 August 2017
Thierry Le Hénaff
Chairman and CEO
39
KPMG Audit
Département de KPMG S.A.
ERNST & YOUNG Audit
This is a free translation into English of the statutory auditors' review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group's half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France
Arkema
For the period from January 1 to June 30, 2017
Statutory auditors' review report on the half-yearly financial information
40
KPMG Audit
Département de KPMG S.A.
Tour EQHO
2, avenue Gambetta
CS 60055
92066 Paris-La Défense Cedex
Commissaire aux Comptes
Membre de la compagnie
régionale de Versailles
ERNST & YOUNG Audit
1/2, place des Saisons
92400 Courbevoie - Paris-La Défense 1
S.A.S. à capital variable
Commissaire aux Comptes
Membre de la compagnie
régionale de Versailles
Arkema
For the period from January 1 to June 30, 2017
Statutory auditors' review report on the half-yearly
financial information
To the Shareholders,
In compliance with the assignment entrusted to us by your Annual General Meetings and in accordance with the requirements of article L.451-1-2 III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on:
- the review of the accompanying condensed half-yearly consolidated financial statements of Arkema, for the period from January 1 to June 30, 2017.
- the verification of the information presented in the half-yearly management report.
These condensed half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review.
- Conclusion on the financial statements
We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information.
- Specific verification
We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review.
We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements.
Paris-La Défense, August 1, 2017
The Statutory Auditors
French original signed by
KPMG Audit
Département de KPMG S.A.
ERNST & YOUNG Audit
Bertrand Desbarrières
François Quédiniac
Denis Thibon