Arkema sharpens focus on hyper growth specialties with sustainability edge – CEO

PARIS (ICIS)–Global specialty chemicals producer Arkema aims to supercharge growth in key targeted markets by leveraging proprietary chemistries to develop new products with clear sustainability and performance benefits.

From France-based Arkema’s spinoff from energy giant Total (now TotalEnergies) in 2006, the company has undergone a major transformation from a diversified chemical company with a mixed bag of commodity, intermediates and specialty businesses, to nearly a pure play specialty and materials business today.

“We had to revisit the strategy of the company in-depth, and we had a strong belief at that time that there was an exponential growth [opportunity] in innovative and high performance materials,” said Thierry Le Henaff, chairman and CEO of Arkema, in a video interview with ICIS.

“So our strategy was to focus on specialty materials around three segments – adhesives, coatings solutions, and also high performance additives and polymers in order to make Arkema a pure specialty player,” he added.

Le Henaff is the 2024 ICIS CEO of the Year, having been selected in a vote among his peers – the CEOs and senior executives in the ICIS Top 40 Power Players.

M&A STRATEGY AND LATEST DEALS
The latest move in the company’s transformation is the acquisition of Dow’s flexible packaging laminating adhesives business for $150 million which just closed on 2 December.

The deal adds about $250 million in sales to Arkema’s Bostik adhesives business, and Le Henaff calls it a “step change” for Bostik in the flexible packaging adhesives market, giving it a unique opportunity to be a key partner for customers across the packaging industry.

Arkema will spend around $50 million in implementation costs or capex related to the acquisition and is targeting about $30 million in annual cost and development synergies after five years.

“We are going to continue to invest in… cost optimization, but at the same time continue to change the portfolio, which means to invest in M&A,” said Le Henaff.

The Dow deal comes on top of major acquisitions such as a 54% stake in South Korea-based PI Advanced Materials (polyimide films for mobile devices and electric vehicles) in December 2023 and US-based Ashland’s performance adhesives business (pressure-sensitive adhesives for auto and buildings) in February 2022.

While the company will now focus more on organic growth, bolt-on acquisitions will be an important part of Arkema’s strategy in the coming years, he noted.

One such smaller bolt-on deal was the April 2024 acquisition of a 78% stake in Austria-based Proionic, a start-up company for the development of ionic liquids, a key component for the next generation of EV batteries.

HYPER GROWTH SUBMARKETS
Speaking of organic growth, the Arkema CEO has an ambitious goal of growing sales in certain parts of its specialty businesses at a rate triple that of its overall business through 2028.

These high growth areas are green energy and electric mobility; advanced electronics; efficient buildings and homes; sustainable lifestyle; and water filtration, medical devices and crop nutrition.

“It is really with this combination of our technologies [in] these submarkets… where we want to multiply by three, the average growth of Arkema. This means that in this market, we could deliver 12% organic growth while for the average of Arkema it would be 4%,” said Le Henaff.

Arkema aims to grow these businesses from around 15% of sales in 2023, to 25% of total sales, which are projected to be around €12 billion, by 2028.

These high growth areas with three times higher sales than the group average will account for 50% of the company’s R&D budget.

“We have about 15 technologies, superior technologies, where we can really differentiate ourselves. Our strategy is really to take advantage of this sustainability trend,” said Le Henaff.

“In fact, the answer to climate change is through the solutions we can develop for customers. This is really the core of our strategy,” he added.

Within electric mobility, in addition to the acquisition of a majority stake in Proionic, Arkema in January 2024 took a stake in Tiamat, a pioneer in sodium-ion battery technology – a potential alternative to lithium-ion batteries.

RENEWABLE RAW MATERIALS AND DECARBONIZATION
Arkema is also undertaking organic growth projects in these hyper growth submarkets.

One key project is in bio-based polyamide 11, used in bicycle helmets, consumer goods, wire and cable and medical equipment.

“We are adding more and more renewable raw materials in the product range we are offering to our customers. One good example and very emblematic [of our strategy] is this polyamide 11 made from castor oil, which is a fully sustainable, renewable, bio-sourced, high performance polymer,” said Le Henaff.

“We are very proud of it, and we have just invested in a plant in Singapore to accelerate the growth of this polymer,” he added.

Its Rilsan bio-based PA 11 has an 80% lower carbon footprint versus traditional polyamide resins using fossil-based raw materials and conventional energy sources, according to the company.

Arkema also recently launched more sustainable adhesive solutions, including its Kizen LIME range of packaging adhesives made with a minimum of 80% renewable ingredients, and Bostik Fast Glue Ultra+ for do-it-yourself (DIY) applications with 60% bio-based materials.

Along with helping its customers decarbonize, the company is also decarbonizing its own operations, targeting a 48.5% reduction in Scope 1 and 2 emissions, and a 54% reduction in Scope 3 emissions by 2030 versus a 2019 base.

One major project is to decarbonize its acrylics production in Carling, France by installing new purification technology. The €130 million project should result in a 20% reduction in CO2 emissions at the site by 2026.

GLOBAL FOOTPRINT
Along with its transformation into pure play specialties, Arkema has also diversified its global footprint, with more exposure in North America than Europe.

Today Arkema is a global player with close to 40% of sales in North America, 25% in Asia and around a third in Europe, versus Europe at about 60% of sales when it was spun off in 2006, the CEO pointed out.

“I still believe in Europe, but it’s clear that we have a gap in competitiveness and also in demand. The pace of demand is slower for Europe than it is for the rest of the world,” said Le Henaff.

“It’s very important that our governments and the European Commission understand that the cost of doing business in Europe is too high compared to what it is in the rest of the world because of legislation, because of the cost of energy, because of the cost of raw materials,” he added.

There is much work to do on this front to get Europe back to competitiveness and growth, especially for chemicals, he said.

DEMONSTRATING RESILIENCE
Arkema’s geographic diversification and specialties focus has made it more resilient to challenging macroeconomic markets.

In Q3, sales rose 2.9% year on year to €2.39 billion and adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased 5.4% to €407 million, the latter driven by 9.0% growth in specialty materials, offsetting a 7.3% decline in intermediates segment. Its overall EBITDA margin expanded to 17.0% versus 16.6% a year ago.

A strong focus on efficiency and a healthy balance sheet has served it well.

“Arkema over 20 years has doubled in size and we have a set number of headcount. This means that competitiveness and productivity is very important for Arkema, even if we are less vocal than other companies on this topic,” said Le Henaff.

On the balance sheet side, net debt of around €3.11 billion is “tightly controlled” at a conservative two times last 12 months EBITDA.

TRANSFORMATION NEVER OVER
Key to success for Arkema is to continuously evolve, be nimble and be open to growth opportunities.

“It’s never over. The status quo in this world is not possible, because the world is changing all the time, because of demography, because of geopolitics, for plenty of reasons, so we have to move forward,” said Le Henaff.

“There are plenty of opportunities, but the opportunities of today won’t be the opportunities of tomorrow. So we really need to have a company which is structured to be able to catch these new opportunities which arise all the time,” he added.

Meanwhile, on the macro-outlook for 2025, he is cautiously optimistic.

“We are all cautious because we thought 2023 would be the year of the rebound and also 2024, so we have to be cautious for 2025. But I’m cautiously optimistic,” said Le Henaff.

“I still think that we should have some kind of rebound for 2025. We’ll see if I’m right or not, but in the meantime, I would say the most important thing is we need to continue [evolving]. We are very glad to be in a unique position because at the end of 2024, we will have nearly fully financed billions of euros of projects, including external growth and organic growth,” he added.

PEOPLE AND CULTURE
Key to any ongoing transformation is of course the people involved. Arkema deems it critical to keep its people engaged with the mission.

“I think, in a world which is quite volatile, quite changing, it’s very important to have fixed points,” said Le Henaff.

First, the long-term strategy and vision has to be attractive. But equally as important is having a corporate culture with clear and simple values. These five values for Arkema are: Solidarity, Performance, Simplicity, Empowerment and Inclusion.

It is the culture that amplifies the inherent strengths in an organization, including technology, and smooths the path for continued successful transformation in an uncertain world, he said.

Interview article by Joseph Chang

Watch the exclusive Q&A video interview with Arkema CEO Thierry Le Henaff on the 2024 ICIS CEO of the Year landing page.