Arkema SA (OTCPK:ARKAF) Q2 2016 Earnings Conference Call August 3, 2016 5:00 AM ET
Thierry Le Henaff – Chief Executive Officer
Thierry Lemonnier – Chief Financial Officer
Thomas Wrigglesworth – Citi
Martin Roediger – Kepler Cheuvreux
Jean-Francois Meymandi – Morgan Stanley
Geoff Haire – UBS
Ladies and gentlemen, welcome to the Arkema Second Quarter 2016 Results Conference Call.
I now hand over to Mr. Thierry Le Henaff, CEO. Sir, please go ahead.
Thierry Le Henaff
Yes, good morning, everyone. Welcome to this conference call, Thierry speaking. With me today are Thierry Lemonnier, our CFO; Sophie Fouillat and Francois Ruas from Investor Relations. As usual, we have posted on our website, as a support to the press release, some slides, which detail the second quarter performance and the main highlights. Together with Thierry Lemonnier, we propose first to comment this set of results, and we’ll then be happy to answer your questions, as usual.
As you have seen from the figures released this morning, Arkema achieved another very good performance this quarter. Volumes are up 2.6% year on year, supported both by our innovation efforts and the geographic expansion of the Group. This is in continuity with the first quarter and represents a good performance in the global worldwide context, which is, as you know, characterized by a moderate growth.
EBITDA, at EUR341 million, is the highest ever delivered by our Group in a second quarter. It is 7% up on last year’s strong second quarter, which already included a full quarter contribution of Bostik, as well as a strong benefit from the newly built Kerteh platform in Malaysia. I think it is important to underline the quality of this financial performance, as it was delivered in overall contracted and volatile market conditions. It is also important to notice that in this quarter, all the three divisions were up compared to last year.
EBITDA margin is high at 17.5%, which is close to historical highs. This performance confirms the step up in the Group’s resilience, with the ongoing expansion of our specialty business lines and the step-by-step more downstream evolution of the Group. HPM and industrial specialties reached very high margins, among the best in the industry, and coating solution achieved close to 14% margin, which is a progress, despite acrylic monomers at low cycle.
Adjusted net income is up 9% year on year, representing around 7% of Group sales. Cash generation is quite solid at plus EUR77 million; and net debt, which is the most important part, is stable versus end of March 2016, despite the fact that we paid the EUR143 million dividend in June.
This continues to show the consistent and heavy focus we put on managing our cash, and delivering on our mission of high EBITDA to cash conversion ratio. These efforts result in a strong balance sheet, with a gearing of around 35%. For the first-half results, performance is significantly up, with an EBITDA 15% up over last year, an EBITDA margin at 16.7% and an adjusted EPS, up 24% on last year. So we can say that after a very good start to the year in Q1, Arkema confirm in Q2 its good momentum.
More fundamentally, beyond the figures themselves, we continue to strengthen the Group’s profile by accelerating the development of our high-performance materials, which now represents 46% of our Group sales in the first semester. I remind you that we target to grow up to 50% of total sales by 2020. With the planned and recent acquisition of Den Braven, we will assuredly be very well on track to achieve this target.
We also continue to balance our geographic presence, getting step by step closer to our long-term ambition, to have around one-third of our sales in each of the three main regions in the world. Looking now at the split of our portfolio, between specialty and quite resilient businesses on the one hand, and the ones we can consider more cyclical, as you can see in slide 6. The step-up of the Group is absolutely obvious. More than 70% of our sales are now achieved in the specialty businesses, and remember that we were at around 40% when we started Arkema.
This business line, specialty business line, delivered a 3.3% volume growth year on year in the first half, which is higher than the Group average. Sales at constant scope of business and FX rate are stable there, with prices holding rather well, in an environment of lower input cost. EBITDA was 20% higher than last year, with a very limited scope effect on these specialty businesses.
I propose now to emphasize a few of the drivers of the first semester, and which are summarized on slide 7. First of all we have Bostik. Integration is a success, and we can say that it is now nearly completed. Synergies are well on track, with around two-thirds of them already achieved.
The strategy put in place by Bostik, of expanding geographically in new and higher-growth territories, reinforcing its innovation efforts and accelerating operational excellence, is delivering well. With these actions in place, Bostik delivered a 13.8% EBITDA margin in the first half of the year, making excellent progress towards our 2020 target which we agreed as 15% in July. Remember that before the acquisitions, the company was running at 10.3% margin, so it’s a significant step up and they are progressively catching up with our major competitors, and we are also running, as you heard of our [indiscernible] plant.
As explained to you two weeks ago, when announcing the purchase of the Dutch sealant company, Den Braven, for all these reasons, we were ready to envisage external growth to complement the current momentum and participate to the consolidation of the still-fragmented adhesive and sealant market. The Den Braven project should close by the end of the year and, given the identified synergy with Bostik, is expected to create a lot of value.
Secondly, fluorogases. We can see that prices are gradually recovering. We are not yet at the end of the road, but the present situation is consistent with our underlying assumptions supporting our four-year recovery plan, with a mix of step-by-step better pricing environment in certain gases and positive effect of some internal actions.
In thiochemicals, the development of the Kerteh’s platform is really a great success, knowing that it started only 18 months ago. And we already delivered, over a 12-months rolling period, the fully targeted contribution we had in mind for the project over three to four years. This is a key achievement for our teams.
In acrylics, we can confirm that unit margin has stabilized as we initially assumed for this year, and this has been the case now since end 2015. So this is aligned with our assumption starting the year and we continue to expect some recovery to gradually start towards the end of the year.
Finally, on M&A. Beyond the Den Braven project, but this time on the disposal side, the Group continued its program with a projected sale of our activated carbon and filter aid business to Calgon Carbon expected to close by the end of the year.
After this introduction, I will now hand it over to Thierry Lemonnier for the detail of the Q2 figures.
Thank you, Thierry. Good morning, everybody. So let’s look now in more detail to the strong performance of the second quarter. At EUR1.95 billion, sales are down 7% year on year on lower raw material prices and perimeter effect with the divestment of Sunclear at the end of the last year.
Volumes are up 2.6%. That is a level comparable to the one of the first quarter, driven by a good demand for innovative applications in technical polymers and growth in adhesives and coating solutions. EBITDA stands at EUR341 million. The 7% progression on last year, already strong second-quarter results, coming mostly from the HPM segment which benefited from the contribution of innovation in technical polymers and from the progresses made by Bostik.
On top of that, we also benefited from the lower raw material costs which, of course, continue to positively impact EBITDA margin. EBITDA margin at 17.5% is significantly above last-year level, driven by excellent margins in industrial specialties and high-performance materials. With G&A stable versus last year at EUR112 million, recurring operating income stood at EUR229 million.
Non-recurring income amounted to EUR10 million and is essentially linked to the non-cash amortization charge related to Bostik PPA, and the positive impact of several changes in retirement schemes within the Group. Taxes stood at EUR68 million. This amount includes a positive EUR3 million deferred tax element related to Bostik PPA, and a EUR4 million contribution paid as a distribution of dividend.
Excluding these two items, tax rate stands at 29% of the recurring operating income, in line with our indication of a yearly tax rate at around 30% of recurring operating income. Adjusted net income stands at EUR147 million; that is EUR1.79 per share. Let’s now go through the performance of our three business segments. As already said, high-performance materials continue to deliver very strong year-on-year growth supported both by Bostik and technical polymers.
Sales are slightly lower than last year because of negative exchange and price effects, only partly compensated by volume growth. But EBITDA at EUR165 million is up 11% year on year. Bostik achieved another strong quarter, with sales organic growth at plus 3%, supported by new development and geographical expansion, with six new plants completed since the acquisition in the beginning of 2015. Synergies and lower costs also supported this good performance.
Bostik progression illustrated by the significant EBITDA margin increase at 13.8% for the first half of the year, so, as Thierry said, this confirmed that step by step Bostik is catching up with its main peers and is well on track to achieve our 2020 target of a 15% EBITDA margin. In the continuity of the first quarter, technical polymers delivered a strong performance, supported by innovation and the continued good developments in lightweight material and new energies.
EBITDA margin for the division stands at close to 19%, 240 basis points above last year level. Excluding Bostik, margin exceeds 21.5% for the first half of the year. So really, an excellent performance for HPM.
In industrial specialties, performance remained very solid in the continuity of the first quarter. With the impact of the Sunclear divestment and a 5.6% negative price effect, sales are down 11% at EUR609 million, while volumes are up 2%, supported by the four business lines. EBITDA is up 5% at EUR134 million, with a high EBITDA margin of 22%.
In fluorogases, profitability continues to gradually recover according to our forecast, and the progresses on the full-year basis will be completely in line with our roadmap. But, as usual, activity level in fluorogases will be lower in the second half of the year because of the traditional seasonality of this activity. In PMMA, market conditions continued to favorable.
Thiochemicals realized quite solid performance, despite a maintenance turnaround in the U.S. and with the contribution of the Malaysian platform, around last year level. In Q3, performance will be affected by the regulatory maintenance turnaround of this platform which has obviously been taken into account in our full-year guidance.
Coating solutions continued to show a good level of resilience. Sales amounted to EUR457 million, down 10% compared to last year. This is mainly due to the negative 12% price effect reflecting the acrylic cycle and lower raw material prices. However, the demand was solid in both monomers and downstream activities leading to 4% higher volumes.
With an EBITDA at EUR63 million, the performance of the division was slightly up compared to last year, despite the impact of strikes in France on the supply chain. In acrylic monomers, Q2 unit margins were still slightly lower than in Q2 2015, but are stabilized now since the end of 2015, in line with our assumptions. The continued good performance in downstream businesses, which is supported by both development and efficient cost management, limits the exposure to the low-cycle environment in monomers.
A few comments now on the cash flow and the net debt, which are both very satisfactory points of this quarter. Free cash flow generation continued to be strong this quarter at EUR77 million. It includes a one-off cash outflow of EUR17 million related to loans to employees, made as part of the share capital increase reserved to employees. So, excluding this impact, the free cash flow amounts to EUR94 million.
CapEx are close to last year’s level and in line with our full-year guidance of EUR450 million. At the end of June, net debt stands at close to EUR1.4 billion and is stable versus the end of March, despite the payment of EUR143 million in June that we did not have last year.
So this concludes my presentation. And I will now hand it over to Thierry for the comments on the outlook.
Thierry Le Henaff
Thank you, Thierry. So now I will come to our conclusion and we’ll be ready to take your questions afterwards. As we said earlier, these results are really pleasing and quite encouraging for the future. Certainly, we prefer to remain cautious about the macro economy, like everyone. We know it remains volatile and with contrast between regions and also between end markets, so we know we have to work in this environment.
We believe that market conditions anyway should continue to be a combination of some positive factors like currency, which, the current level of the euro, or lower energy, raw material prices; but also, more challenging ones like the global demand growth, which is quite moderate compared to what it was a few years ago.
In this context, we’ll continue to focus on the elements that we really control, the internal ones, notably with the development of Bostik, and they have the further implementation of synergies. Also, we’ll continue to push profitability of fluorogases gradually. And we’ll benefit, as we have been doing in the first semester, and it was rather impressive, to get the benefit from our innovation efforts on megatrends.
We take into account the lower seasonality of the second semester, which is traditional at Arkema. We have also this turnaround of Kerteh that we mentioned because this platform has been followed by most of you. So we mentioned it; it will take place in the third quarter. And assuming market conditions which are in the continuity of the first semester, we now expect in 2016 a significant EBITDA growth of some 7% to 9%, which would be an excellent achievement in our industry.
So this is what we wanted to tell you. And let’s now go over your questions. Thank you.
[Operator Instructions] So we have our first question coming from the line of Thomas Wrigglesworth from Citi. Please go ahead.
Thanks very much for taking my questions. The first two relate to margin sustainability, both in high-performance materials, as you point out, ex-Bostik margins, 21.5%; and similarly in fluorogases, margins at 22%. Ex the sales line adjustments, so in the absolute EBITDA levels, are there any – is this the new sustainable level of margins going forwards? And are there any factors that we should be considering that are flattering the absolute level of EBITDA or that are actually penalizing the absolute level of EBITDA? So a question there.
And the second question if I may, you’ve got the new Changshu fluorogas facility starting to ramp up through the second half of this year if I remember the timing correctly. And yet, I think the 1234yf DuPont – sorry, Shamor and license around the automotive is still outstanding or in dispute.
If you can’t sell into the automotive sector with the Changshu output, where will that product go? Will you still get a competitive return selling to other markets that may not value the environmental improvement of the new products as much as the automotive sector? Thank you.
Thierry Le Henaff
Okay, Thomas, for your question, just a point of correction. The 22% we were mentioning was for the whole industrial specialties, and not fluorogas.
Sorry. Yes, I meant for industrial specialties, sorry, I correct myself.
Thierry Le Henaff
Okay. Okay, that’s clear between us. No, I think, first of all, there is no one-off or whatever and the figures are very clean. This is the first thing.
The second thing if you look at the sequence over the past quarter, you feel that we are, step by step, reaching a level of reserves which really correspond to the transformation of the Company. It’s not just like one external element or another. It’s clear that is not only for us; it’s just for the whole chemical industry, particularly specialty chemicals industry.
The fact that you have lower input costs, which weighs on the sales, and also on the unit margin, to a certain extent, with some partial effects that disappears step by step, certainly help the level of margin. That is true for the whole industry. And there is absolutely within Arkema no specific element beyond the fact that I think we are doing a good job. And that our internal projects are contributing to the excellent results that we can see.
With regard to the 1234yf, I think there is no news. It’s still in the hands of the commission. And we wanted to have a site ready because if we don’t have the site ready, then you have a favorable decision of the commission, and you cannot do anything with it.
So offsite is ready. It’s a reasonable investment compared to the size of our Group. We are convinced that we will use it at a certain point; the sooner is certainly the better. But I think it was important to be positioned from a manufacturing standpoint; beyond CMOS and Honeywell, we are the only ones now. As we mentioned, the key is in the end of the commission. And we have not changed our advice on the topic. We still think that it’s a very solid case. But we have to be a little bit patient.
Okay. Thank you very much.
Thierry Le Henaff
Thank you, sir. Next question is coming from the line of Martin Roediger from Kepler Cheuvreux. Please go ahead.
Thanks for taking my three questions and also good morning. First, on the end markets, can you talk about the end markets? We hear from other chem companies that construction and automotive do well; oil and gas, as well as super solvents are difficult. Can you confirm that? And is there any other end market which is worth to highlight in either a positive or a negative way?
Secondly is on raw materials. Thierry, you mentioned the benefits from raw materials also occurred in the second quarter. Can you quantify the magnitude? And I heard you say that coating solutions was affected. Was that the division which benefited most? I thought it could have been HPM. And when do these windfall profits disappear in your view?
And finally, on two business units which were able to show an increase also on a reported sales figure, i.e., hydrogen peroxide and technical polymers, both benefited from, let’s say, innovations; hydrogen peroxide from specialties; technical polymers from lightweight materials and energies. Can you again talk about here what you’re seeing? What are the growth prospects, to get a better understanding how these things will develop going forward?
Thierry Le Henaff
Okay. Thank you, Martin. As usual, good questions. With regard to the end markets, yes, we share the fact that construction, automotive are overall doing quite okay. I think what we see is what our peers are seeing, so no surprise there.
Super solvent, it’s clear it has been a bit more challenging than it was in the past. But it’s still a growing business, which is not the case for oil and gas for the time being, as we all know, so all these trends are clear. Now your question is more about other end markets. I would say I would mention really – you could mention certainly everything which is linked to lightweight materials, all these megatrends; new energy, lightweight materials are doing quite good.
You see really an acceleration of this trend over the years where everyone is – all the end markets involved which can be in sport, in automotive, in windmill, whatever, in aeronautics, they put really a lot of emphasis on the implementing new materials. And for a company like us, it’s really a big area of development and I think we have the technical skills for that. So I would mention that. What is linked to megatrends, tomorrow what our situation, we certainly continue to grow significantly. So we start with some niche and small volumes. But after a few years, it can be important for a company like us.
And also animal nutrition, which has well supported the growth of the thiochemical sector, as you know, over the past year. But what we try to do because we know that the truth of today is not the truth of tomorrow, is really to have a balanced portfolio. It’s true for the businesses and also true for the geographical footprint.
With regard to raw materials, I think we mentioned it because first it’s obvious for everyone that the oil price being down, the raw material are down, we know that some parachute effects which were there last year disappeared this year, but we also know that among plenty of other elements, it’s more a positive factor for a specialty chemical company but not more Arkema than all others. But it was important to mention it among other factors, external or internal.
I would not say that coating solutions has benefited more because, in fact, coating solutions is an integrated segment and, as you know, we have suffered in acrylic monomers and because this is the importance of having a downstream to our upstream, it’s clear that the downstream, to a partial extent, but to a certain extent, benefits from the fact that the downstream is weaker in terms of unit margins. So you have this – the integration is playing its role and we were happy to have this.
Because we discussed coating solutions offer not something weak but we are close to 14% margin this quarter, in the second quarter, which is really finally, in the current context of acrylic monomers, a pleasing result. But our main message on raw materials is just that what we see is what our peers are seeing; not more, not less. But I think in this given environment, I think we are playing well and the fact that the Company is going to more specialty make us benefit more than in the past, maybe, of this evolution.
With regard to hydrogen peroxide and technical polymers, yes, you are right to mention that they both benefited from innovation. For me, this innovation, especially what is linked to megatrends, so I come back to my first comment, will be there for many years and we’ll continue to benefit from this innovation.
It’s not only blockbusters. Sometimes it’s just a little bit of different niches but at the end, it’s one element that we put at the same level as improvement of fluorogas, development of thiochemicals, evolution of Bostik.
And you can see that the profitability, as Thomas mentioned before, of HPM excluding Bostik is 21.5% and in terms of EBITDA, clearly innovation is playing a role and evolution of the product mix following this innovation.
Thank you very much.
Thierry Le Henaff
Thank you, sir. And next question is coming from the line of Jean-Francois Meymandi from Morgan Stanley. Please go ahead.
Two, three on my side. The first one on Bostik. If I look at your Q1/Q2 release, it looks like you’re nearly around EUR110 million of EBITDA for the first half. It looks like you could come very, very close to your 2017 target in EBITDA already this year. Do you see that you’re going to have a reversal from raw materials later on this year, or we still should continue on a very good margin that we’ve seen in H1 and what trends do you see there?
The second one, a touch of surprise on your price in industrial specialties. Given the fact that the fluorogas price is increasing, what is behind that and what can we see? And the third one, to just come back to technical polymers. You started only to have an increase late in Q4 last year, if I remember well. Are we going to – can we assume the same progression in H2, or roughly the same progression in H2 that we’ve seen in H1 there? Thank you very much.
Thierry Le Henaff
Sorry, Jean-Francois, can you say again your last question to make sure that…
In technical polymers, we see a huge increase year on year now. I guess it’s something fundamental that will continue at least for the next two quarters on a year-on-year basis, the margin effect. Or is there something exceptional that happened in H1 that we shouldn’t see in H2?
Thierry Le Henaff
Okay. So, with regard to Bostik, you are right to say that we are ahead of the plan, which I think we are all happy about, including yourselves. This means that this acquisition was really a good one with a good timing. The EUR110 million, I think the math is rather obvious, so, yes, you are right, for the first semester. After that, we believe that the second semester – even if they are more balanced than for Arkema, the first semester is even for Bostik a little bit higher than the second semester. So take that into account, but which means that, yes, we should certainly be very close to the – with one year in advance to our target 2017, I cannot say the contrary.
So we don’t anticipate any reversal of anything. I think it’s – and raw materials is not the main driver of the profitability of Bostik. There are plenty of elements and I would certainly put the emphasis on the – all their internal momentum. There have geographical expansion. They have started seven plants this year. Also, in terms of synergy with Arkema, we are going quite fast. So there are plenty of elements.
So, no, I think we are on track, more than on track and I don’t see – I see this good trend continuing. But just take into account that with regard to Bostik, we have a second semester which will be a little bit lighter than the first one.
True, but let’s say versus your plan that you gave when you acquired Bostik, what has been the main thing where you overachieved versus your plan and so far?
Thierry Le Henaff
Well, I say, and it’s not new, I say that with regard to internal elements within Bostik, they are fully on track. With regard to synergies, maybe we are a little bit ahead of the game. With regard to raw materials, even if the benefit is only partial, we all know that additive companies make a bit more of profit when the oil price is low, so like Sika, like Ferro, they are in the same environment, so it’s certainly an up and I think we had absolutely no surprise on what we found.
So, the base was very healthy and so we had no negative factor that when we make an acquisition – and also an acquisition we took already some cautiousness factor in our plan and here, we have to say that the base was very solid, so we had no contingency on that.
So it’s really a sum of different elements and, no, I think it’s really a very nice story and not only for – because we are talking about short term and we didn’t make the acquisition of Bostik just for one year or two. So it’s a long-term platform and it’s quite promising for the long term. With regard to industrial specialties, so pricing is – industrial specialties, don’t forget that we are more in intermediate chemicals than pure downstream chemicals. So we are more sensitive to the raw material effects than we are, for example, in HPM.
After that, you have some elements of mix, depending on the quarter, etc. Onshore gas, for example, you have so many products which are full, which are not the same on quarter to quarter. So at the end what counts is really the EBITDA or the net profit more than the revenues. For us, we don’t put too much attention on the pricing. What is important is the difference between pricing and input costs. And as you could see, we are in good shape.
And with regard to fluorogases, so some products have increased our prices, but the mix has been different than what it was last year. But at the end of the day, profitability is better, which is really what counts. With regard to technical polymer, no, I think we have a good margin now. You have some seasonality. The second semester was quite good last year. We have really a very strong second semester. So we prefer to be a bit cautious, but the quality of the result we’re still good at, at which level we’ll see.
I think we’ll see where we are in the next quarter, but there was no exceptional, if it is your question, in this one quarter which would have boosted especially the result. Just when you compare year on year, have in mind that last year, the second semester was particularly good in technical polymers, that’s all. But no, I think we have – and I’m very glad about that. Really, as a team in terms of innovation, cost levels, they have done a tremendous job and we benefit from it. We are very well positioned on megatrends and it certainly helps.
Since we’re on the HPM, also don’t forget because when you say technical polymers, you have also in mind the HPM I assume. That, with regard to filtration and absorption, especially with molecule acids, compared to last year, where finally we had a quite reasonably good second semester, this year will be weaker. We have known that at the beginning of the year, so no surprise there, but have that in mind also, okay?
Okay, thank you very much.
Thank you, sir. Next question is coming from the line of Geoff Haire from UBS. Please go ahead.
I just wonder if I could ask a couple of questions. Could you give us some sense of what the impact of the thiochemicals turnaround will be in the second half, first of all? And also, whenever I look at the seasonality historically of Arkema, it’s generally about 52% of your profit is made in the first half of the year. If I applied that to this year, we would get a number that’s higher than the current guidance you’re giving. I was just wondering beyond the macro environment, is there any other reason for the caution with the outlook?
And then finally, just on acrylic acids, you’re saying that unit margins you expect to go up toward the end of the year. Is that in all regions, including in Asia?
Thierry Le Henaff
With regard to thiochemicals, first of all, we mentioned it has a more qualitative than quantitative element because we know that all of you are following this, specifically what is linked to thiochemicals because Kerteh was really a huge investment, very successful but important investment.
And also, animal nutrition methionine is something which is feasible. So this is why we decided to mention it. You know it’s a turnaround which is a legal one. One year after the start of any plants in a manager, you need to have a full turnaround that we will get. So it’s more about the seasonality between Q3 and Q4. And we believe it could cost a few million, something like that. But part of it will be offset in Q4, maybe not all of it, but take a net of a few million okay?
Okay, thank you.
Thierry Le Henaff
On the seasonality, don’t forget that on the Q1, we had one more month of Bostik this year and one more quarter of Kerteh. So you need, when you make the math, to take that into account. Once we have said that, I would say that seasonality can be different. What you say is true in average but you have some differences, depending on which year. And at the end of the day, for the guidance, we gave you our best shot.
What we wanted to have for the guidance, because we had some question of it, is really to give you a solid guidance. We are just at the middle of the year. I think it has a merit to give you figures, which not everybody do, to have a precise guidance. It’s an upgrade compared to our initial guidance we gave you in the spring. And at the end, it means a 7% to 9% EBITDA growth year on year, which would be a very good achievement. So let’s start with that.
We are still in the middle of the year and we’ll see where we are in the Q3. But basically, on the seasonality, take into account the Bostik and Kerteh effect. On acrylics, so, as we mentioned before, we have no crystal ball, so we try to give you our best feeling. We’re still saying that there could be some gradual improvement at the end of the year. But knowing that even in Q2, for the coating solutions, so I go beyond acrylics with the downstream, the level of the EBITDA margin in the second quarter for acrylic in the cycle are not bad. So take that into account because it was a pleasing result.
Now, which region there could be some improvement? I would say the ones which are late are more Asia and Europe. So it would mean, maybe, more Asia and Europe, but also U.S. volumes, as you’re aware, are not so good. So maybe also it’s a bit here. So I would say it’s spread over the three regions.
Okay, thank you.
Thank you, sir. We have no further questions. [Operator Instructions] We have actually one question will comes from the line of Geoff Haire from UBS. Please go ahead.
Hi, sorry about that. I’ll just ask one more question. I just wondered if you could give us some idea of, given that where the mix of the business is heading, where you feel comfortable with leverage targets at the moment, obviously, taking into account that you’ve got the EUR485 million that you’re going to spend for – or you have spent for Den Braven when that closes, which will take your net debt from today to somewhere around about EUR1.4 billion, EUR1.5 billion.
I was just wondering where you think you’re comfortable in terms of leverage targets at the moment?
Thierry Le Henaff
We are still – I think 40% is really what we have communicated since many years, so we are still comfortable with a 40% gearing if it is your question.
Thank you we have actually another question coming from the line of Martin Roediger from Kepler Cheuvreux. Please go ahead.
Yes, also apologies from my side. On the financial result, because it was radically a lower negative in the second quarter, I had in mind that you were looking for a financial result of minus EUR85 million to minus EUR90 million for the full year. Did that change, or is that still the case?
No, Martin. This is Thierry Lemonnier speaking. On a full-year basis, the amount of financial cost should be at around EUR95 million; it is comparable to what we had last year. Don’t forget that within the financial charge, you have three different elements. The first is obviously the cost of debt which is more or less stable, and, to a certain extent, now related also to other interest rates than the euro rate since we have swapped part of our debt in dollars. The second element is the interest cost on pension which is, depending on the interest rate, between EUR15 million to EUR20 million.
And then we have a third element which is difficult to anticipate which is the ForEx results coming from the fact that for certain of our subsidiaries, the debt is in another currency than the one in which they have the other account. So, all in all, we have three elements and we should be at EUR95 million plus or minus, depending on the FX and interest cost on pensions.
Thank you very much. Very helpful.
Thank you. And we have another question coming from the line of Jean-Francois Meymandi from Morgan Stanley. Please go ahead.
Two quick housekeeping questions. The first one on your guidance for H2; is there any portfolio effect or further ones, i.e., did you factor in any closures of any deals you have currently announced?
Thierry Le Henaff
I could just answer directly. So there is no portfolio effect. So Den Braven is not taken into account; neither the sale of filtration to Calgon Carbon. But at the end, even if it happens, since it will happen both at the end of the year, it will be limited.
Okay, okay. And then another one on the fluoro pricing; on the U.S. side, will you have a tailwind in H2 from further pricing increase, or we are done with pricing increase in the U.S.?
Thierry Le Henaff
In fact, the way we prefer to express it, Jean-Francois, if you allow me, is that in fact – so the first semester was in terms of – we are fully in line with our guidance for the four years, one of the four years, etc.
The big bulk of it has been achieved in the first semester because, as you know, the seasonality of fluorogas is low in the second semester because the distributors are getting supplied before the season – in advance of the season price. So this is why, at the end of the day, it makes no difference. Now, once we have said that it will be limited in the second semester, I would say yes, gradually, we have some improvement here and there including in the second semester and next year, yes.
Sure, but as we look on a year-on-year basis, H2 last year was equally weak as H2 should be this year on the volume.
Thierry Le Henaff
Yes, sure. No, that will be – year on year, that will be progressed except that we’ll compare to a base – to volumes which are smaller, that’s all – applied to the volumes which are smaller. But yes, there will be a progress still.
Perfect. Thank you very much.
Thank you, sir. We have no further questions.
Thierry Le Henaff
Okay. So, if we have no further questions, I would like to wish you all a good end of summer, and thank you for your attention. And if any complementary questions, don’t hesitate to ask Sophie and Francois; they will be pleased to answer you.
Thank you. Have a good day.
Ladies and gentlemen, this concludes today’s conference call. Thank you all for attending. You may now disconnect.
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