S&P revises Arkema outlook to stable on weaker demand

Investing.com -- S&P Global Ratings revised its outlook on French specialty chemicals company Arkema (EPA:AKE) to stable from positive on Monday, while affirming its ’BBB+/A-2’ ratings.

The outlook change reflects S&P’s view that end-market demand has weakened since 2023 and will not recover significantly before mid-2026, resulting in performance below previous expectations.

In the past two years, volumes have declined notably in Europe and the U.S. Several of Arkema’s end markets, including construction, automotive, and general industry, have experienced reduced demand amid higher interest rates.

For the first quarter of 2025, Arkema reported a 1.7% increase in sales, including the impact of Dow’s laminating adhesives business acquisition and positive currency effects. However, on an organic basis, sales declined by 0.7%. While the Asia-Pacific region remained resilient, demand continued to be weak in Europe and North America.

S&P forecasts Arkema’s adjusted EBITDA to remain flat year-on-year at about €1.475 billion-€1.500 billion in 2025, rising to approximately €1.600 billion in 2026. The rating agency expects funds from operations (FFO) to debt to stay between 40%-45% in 2025-2026, with free operating cash flow (FOCF) to debt remaining below 20%.

Despite the continued weak demand, S&P believes Arkema’s business strengths have developed favorably. The company has enhanced its scale and improved its geographic footprint through organic growth and medium-sized acquisitions in recent years. Arkema has increased its exposure to the adhesives industry and strengthened its advanced materials segment, particularly in Asia.

The rating agency noted that specialty materials now account for about 92% of Arkema’s total sales, in line with its strategy to become a pure specialty player. This shift is expected to lead to greater resilience in earnings and cash flows.

S&P could lower the rating if the economy and demand for Arkema’s products deteriorate further, reducing FFO to debt to 35% without prospects for quick recovery, or if the company undertakes significant new capital expenditures or large debt-funded acquisitions.

A rating upgrade would require Arkema to demonstrate strong commitment to financial policies that would support a higher rating, leading to FFO to debt sustainably above 45% and FOCF to debt above 20%.

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