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Arkema: 1st Quarter 2010 results

Published on 2010-05-12. Author : SpecialChem

The Board of Directors of Arkema met on May 10th, 2010 to review the Company's consolidated accounts for 1st quarter 2010. At the end of this meeting, Thierry Le Hénaff, Chairman and CEO of Arkema, stated: "2010 started off well for Arkema in a much more positive economic environment. Our volumes rose significantly, by 20% on last year. Asia in particular saw a 35% increase in sales compared to 1st quarter 2009, and this reflects our investment policy in the region since 2006. "

EBITDA is back at levels close to pre-crisis although volumes are still lower. This improvement in profitability was also the result of a significant reduction in fixed costs reflecting the actions we have been implementing in the last few years.

Arkema is pleased with the performance of the Industrial Chemicals and Performance Products segments, which accounted for 80% of our sales and generated a 14.5% EBITDA margin in the quarter. In 2006, the year of Arkema's stock market listing, these segments achieved together a 10% margin. This reflects our teams' achievements since the spin-off.

The quarter was also marked by two major and highly positive events for the Company: the closing of the acquisition and the integration of the acrylic assets purchased from Dow in a steadily improving market, and the successful startup of our new fluorogas plant at Changshu in China.

For the full year 2010, Arkema is confident in its ability to generate an EBITDA very significantly above 2009 while continuing to closely monitor the developments of still volatile market conditions.

1ST QUARTER 2010 ACTIVITY

Sales totaled €1,308 million, 20% up on 1st quarter 2009. Volumes in the quarter increased by 20% over 1st quarter 2009, sustained by strong demand in Asia, signs of recovery in North America, and expanding new energies markets. The effect of changes to the scope of business amounted to 6% following the acquisition on January 25th of certain acrylic assets in North America. The negative price effect (-4%) primarily reflected the evolution of caustic soda prices in the Vinyl Products segment, which were divided by two compared to the peak reached in 1st quarter 2009. The translation effect, primarily related to the euro/US dollar exchange rate, was negative at -2%.

In this context of demand recovery, and despite volumes being still below pre-crisis levels, EBITDA improved significantly to €137 million, i.e. 2.4 times EBITDA of the 1st quarter 2009. Except for the Vinyl Products segment, unit margins showed resilience overall given the rise in raw material costs. Unit margins for Acrylics improved gradually since their lowest levels in 4th quarter 2009 despite higher propylene cost. The newly acquired acrylic assets generated positive EBITDA already in the first months of their integration within the Group. Developments in Asia continued with the successful startup of a new HFC-125 fluorogas production plant in China. Arkema also pursued its development in the growing new energies markets thanks to the new products developed by its R&D. Finally, Arkema continued to improve its cost structure. The reduction in its fixed costs was in line with the announced full-year 2010 objective.

EBITDA margin rose to 10.5% of sales, close to its historical highest levels (10.7% in 1st quarter 2008), against 5.2% in 1st quarter 2009. Operating income rose to +€60 million against –€16 million in 1st quarter 2009, after deduction of €70 million depreciation and amortization and –€7 million non-recurring items. Income taxes amounted to €18 million against €13 million in 1st quarter 2009, i.e. approximately 27% of recurring operating income.

Net income (group share) was back to positive at +€40 million against -€35 million in 1st quarter 2009.

SEGMENT PERFORMANCE IN 1ST QUARTER 2010

Vinyl Products (21% of total sales): IMPROVEMENT VERSUS 4TH QUARTER 2009 IN CONTINUING CHALLENGING MARKET CONDITIONS

Vinyl Products sales stood at €271 million against €257 million in 1st quarter 2009, up by 5.4%. Volumes improved despite bad weather conditions at the beginning of the year and in a construction market that remains weak in Europe. The negative price effect corresponds essentially to the drop in caustic soda prices which were divided by 2 versus 1st quarter 2009. The effect of changes to the scope of business, also negative, reflects the divestments made in 2009.

In this still challenging environment, EBITDA was negative at –€8 million against €2 million in 1st quarter 2009. It did, however, improve compared to 4th quarter 2009 when EBITDA stood at -€18 million, sustained by higher volumes and lower fixed costs. PVC price increases offset the rise in the cost of ethylene. Finally, Qatar Vinyl Company, in which Arkema owns a 13% stake, reported an excellent performance driven by demand in Asia.

Industrial Chemicals (51% of total sales): CONFIRMATION OF THE SEGMENT'S EXCELLENT PERFORMANCE Industrial Chemicals sales rose to €661 million, 30% up on 1st quarter 2009. At constant perimeter, namely excluding the impact of the acquisition in late January of certain acrylic assets from Dow, volumes rose by +17.5%, while the price effect was positive.

EBITDA amounted to €96 million against €73 million in 1st quarter 2009. EBITDA margin stood at 14.5% despite the diluting effect of the acquisition of certain acrylic assets from Dow. Unit margins for acrylic acid improved compared to 4th quarter 2009 despite the rise in propylene costs and in a context of tight supply. This development confirms the assumption used by the Group of a gradual improvement of margins in this activity in 2010. Furthermore, the integration of the new acrylic assets in North America is progressing as expected with an already positive contribution to EBITDA in more favorable market conditions. The implementation of the Methacrylates restructuring plan in Europe helped significantly reduce the segment's fixed costs. Finally, developments in Asia, in Hydrogen Peroxide and in fluorogases, continued to bear fruits while a new fluorogas (HFC-125) production plant came successfully on stream at Changshu (China) in partnership with Daikin.

Performance Products (28% of total sales): SHARP RECOVERY OF PROFITABILITY

Performance Products sales rose by 15% to €372 million against €323 million in 1st quarter 2009. A strong rebound in volumes reflected sustained demand in particular in automotive, and in Asia for high performance polymers (polyamides, PVDF) and organic peroxides, and a growing contribution of products targeting new energies, e.g. solar photovoltaics. Volumes, however, remained below pre-crisis levels.

In this more positive environment, EBITDA rose to €54 million against €17 million in 1st quarter 2009. Unit margins for the various product lines resisted well despite rises in raw material costs, and the productivity drive continued in Technical Polymers and Functional Additives.

Hence EBITDA margin stood at 14.5% (against 5.3% in 1st quarter 2009), its highest level since Arkema's spin-off.

CASH FLOW AND NET DEBT AT MARCH 31ST 2010

Cash flow from operating activities was positive at €22 million, after deduction of a –€68 million variation in working capital reflecting the improvement in the business and the usual seasonality.

The efforts launched in 2009 to optimize the management of inventories and of working capital continued at the beginning of the year, in line with the Company's objective to maintain the working capital on sales ratio at approximately 16%. By end March 2010, this ratio stood at 15.6% against 23.0% at end March 20091. Recurring capital expenditure amounted to €50 million in 1st quarter against €52 million in 1st quarter 2009. Net debt stood at €380 million against €341 million at end December 2009, i.e. gearing below 20%. This includes the partial impact of the acrylic assets acquisition, the balance being expected in 2nd quarter.

1ST QUARTER 2010 HIGHLIGHTS

In 1st quarter 2010 Arkema achieved a major step in its transformation with the closing on January 25th, 2010 of the acquisition from The Dow Chemical Company of certain acrylics assets in North America. The Clear Lake (Texas) acrylic acid and acrylic ester production plant was integrated into the Acrylic business unit, while the specialty latex activities (UCAR® Emulsion Systems) formed the Group's latest business unit, Emulsion Systems. This acquisition enables Arkema to significantly expand its product offering in Coatings, and to strengthen its position in acrylic monomers, a sector in which the Group is now the world's 3rd and America's 2nd leading player. The integration of the new activities is taking place in more positive market conditions thanks to growing demand in the main end-markets and to improving unit margins for acrylic monomers.

POST BALANCE SHEET EVENTS

As part of the Arkema Daikin Advanced Fluorochemicals Co. Ltd joint venture, Arkema announced the successful startup of a Forane® 125 (HFC-125 fluorogas) world-scale production plant built on its Changshu site in China. HFC-125 is an essential component of new generation refrigerant blends. The project will help reinforce the Group's position in China and in Asia in line with its objective to achieve 22% of its global sales in this region by 2014.

In April 2010, Arkema conducted a share capital increase reserved for employees, with the aim of continuing to encourage its employees to be part of the Group's transformation. 824,424 shares were subscribed to for a purchase price set at €20.63 per share, representing a total of €17 million. Following this operation, employee shareholding rose from 3.6% to almost 5%.

OUTLOOK

The more favorable market conditions prevailing since the beginning of the year are continuing in 2nd quarter. Given the traditional stronger seasonality of some product lines, e.g. Fluorochemicals, Coatings and Specialty Chemicals, and the improvement in acrylic unit margins, EBITDA in 2nd quarter will continue to improve and will be above 1st quarter 2010.

Beyond this, in a still volatile economic environment, Arkema will continue to improve its cost base and optimize its cash flow generation Moreover, its projects in terms of growth in Asia, development of high performance polymers, and bolt-on acquisitions remain a priority. These various projects reinforce Arkema's ability to generate in 2010 an EBITDA very significantly above 2009.

A global chemical company, Arkema consists of three businesses: Vinyl Products, Industrial Chemicals, and Performance Products. Arkema reported sales of 4.4 billion euros in 2009. Arkema has 13,800 employees in over 40 countries and seven research centers located in France, the United States and Japan. With internationally recognized brands, Arkema holds leadership positions in its principal markets.

Source: Arkema


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