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ARKEMA: 2009 RESULTS

Published on 2010-03-08. Author : SpecialChem

PARIS -- The Board of Directors of Arkema met on March 3rd 2010 to close Arkema's accounts for 2009. At the end of the meeting, Thierry Le Hénaff, Chairman and CEO of Arkema, stated: In 2009, Arkema demonstrated its ability to adapt to a challenging economic environment, by generating 228 million euro free cash flow and reducing its fixed costs by 171 million euros, well above the targets set at the beginning of the year.

In the 4th quarter of the year, an 8% improvement in volumes over the same quarter of 2008 together with the benefits from the cost-cutting initiatives implemented throughout the year led to a 74% EBITDA increase. Meanwhile, we pursued the in-depth transformation of the Group by improving its positioning and implementing a targeted growth policy.

We were also very pleased to announce on January 25 this year, the closing of the acquisition of certain acrylic assets from Dow in the United States. This is a major step in Arkema's development since its listing. We have begun 2010 with confidence, while maintaining cautious market assumptions. We target a significant improvement of our sales and EBITDA in 2010.

Accordingly and considering Arkema's very strong balance sheet, the Board of Directors has decided to propose to the next Shareholders Meeting to maintain the dividend at the same level as last year, namely €0.60 per share.

2009 PERFORMANCE

SIGNIFICANT REDUCTION IN FIXED COSTS IN A CHALLENGING ECONOMIC ENVIRONMENT, AND IMPROVEMENT IN VOLUMES AT THE YEAR-END

Sales totalled €4,444 million against €5,633 million in 2008 in an unprecedented economic environment. Volumes showed a 13.9% decline over 2008 due to the combined effect of a drop in demand and the massive de-stocking by the customers in the first six months of the year. Situation differed from one region of the world to another. Asia, where Arkema now achieves 18% of its sales (against 13% in 2006), saw a strong demand recovery since 2nd quarter 2009. Volumes in this region now exceed pre-crisis levels. In Europe and the United States, volumes remained below pre-crisis levels despite the end of de-stocking and a few more positive signs in North America.

Price effect (-7.7%) primarily reflected lower raw material costs, in particular ethylene and propylene, in some product lines (PVC and Acrylics), and the fall in caustic soda prices, which reached their lowest level in 3rd quarter. The translation effect was positive (+1.1%), while the effect of changes in the scope of business remained limited (-0.7%).

EBITDA stood at €310 million in 2009 against €498 million in 2008. Arkema limited the impact of volume drop by speeding up cost reductions. Therefore, the Group generated an EBITDA gain of €132 million thanks to €171 million reductions in fixed cost savings over and above the initial stated target of €110 million. Additionally, the new production units in Asia in Industrial Chemicals (H2O2, Fluorochemicals) and the latest developments in renewable energies and high performances polymers generated €36 million EBITDA. EBITDA margin reached 7.0% of sales against 8.8% in 2008 and 6.2% in 2005. Recurring operating income was positive at €40 million, and included €270 million depreciation and amortization.

Operating income totalled -€69 million after deduction of non-recurring items. The latter, amounting to -€109 million, primarily included charges relating to the restructuring plans announced in North America and in Methacrylates in Europe.

Financial result stood at -€28 million against -€35 million in 2008. The cost of debt, below 2008 levels, reflected the decrease of the Group's average net debt and of average interest rate at 2.2% in 2009 (4.5% in 2008).

Income taxes amounted to -€87 million in 2009 against -€69 million in 2008. This relatively high tax charge reflected the breakdown of results between France and the rest of the world.

Hence net income (Group share) stood at -€172 million in 2009.

2009 SEGMENT PERFORMANCE

Vinyl Products: TROUGH MARKET CONDITIONS

Vinyl Products sales amounted to €1,005 million (€1,443 million in 2008), and EBITDA totalled -€31 million (€14 million in 2008), affected by the sharp contraction of demand in construction in Europe, the collapse in caustic soda prices in 2nd quarter, and low PVC unit margins. Restructuring in downstream PVC largely contributed to the segment's fixed cost savings which partly mitigating the impact from the economic environment. Furthermore, in order to continue reducing the relative weight of Vinyl Products in Arkema's sales, several businesses accounting for annual sales of €70 million were divested during the year.

Industrial Chemicals: RECORD EBITDA MARGIN SINCE SPIN-OFF AT 14.5%

Industrial Chemicals sales reached €2,109 million (€2,582 million in 2008). Despite a 12% decrease in volumes compared to 2008 and very low Acrylics unit margins, EBITDA stood at €306 million, i.e. a 14.5% EBITDA margin, its highest level since Arkema's spin-off (against respectively €341 million and 13.2% in 2008). Thiochemicals and Fluorochemicals reported strong results reflecting the in-depth transformation initiated several years ago. Coatex showed good resilience, confirming its successful integration. Growth in Asia was supported by developments in Hydrogen Peroxide and Fluorochemicals. Finally, significant fixed cost reductions, in particular in Methacrylates, contributed positively to EBITDA. End 2009, as part of the Methacrylates restructuring plan in Europe, the Carling (France) MMA production plant was shut down.

Performance Products: COST REDUCTION AND VOLUME RECOVERY IN THE 2ND HALF OF THE YEAR

Performance Products sales amounted to €1,318 million against €1,602 million in 2008. EBITDA stood at €102 million against €177 million in 2008. In line with market trends in automotive and construction and the recovery in new energies markets, sales volumes, 16% down on 2008, gradually improved in the 2nd half of the year. Prices were overall resilient. Specialty Chemicals posted a solid performance. In Technical Polymers and Functional Additives fixed costs were further reduced. Finally, the successes reported in sustainable development sector and in high performance polymers (photovoltaics, lithium-ion batteries, high temperature polyamides, etc.) gathered strength.

CASH FLOW AND NET DEBT AT DECEMBER 31ST 2009

+€228 MILLION FREE CASH FLOW

In 2009, Arkema gave priority to cash generation, and reported free cash flow2 of €228 million, well above its initial target of a positive cash flow for the year.

This excellent performance results primarily from a significant reduction in working capital which generated +€384 million cash flow. The concerted efforts of Arkema's teams focused on optimizing quantities in stock, hence helping to reduce the working capital from 18.7% of annual sales in 2008 to 16.2% in 2009. Recurring capital expenditure was limited to €262 million, a 13% reduction compared to 2008. Arkema nevertheless actively continued its expansion projects in Asia, a region in which its capital expenditure accounted for €51 million, 24% up on 2008.

Net debt stood at €341 million at December 31st 2009 against €495 million end 2008, a 31% reduction despite the payment of a dividend of €0.60 per share in respect of 2008 totalling €36 million. The net debt to equity ratio was low at 19%.

4TH QUARTER 2009

EBITDA in 4th quarter 2009 was significantly up on 4th quarter 2008, sustained by an increase in volumes over the same quarter of the previous year and the benefits from fixed cost reductions.

Sales in the 4th quarter 2009 amounted to €1,082 million (€1,182 million in 4th quarter 2008). Volumes were up 8% compared to 4th quarter 2008. Prices decreased by 13% compared to 4th quarter 2008, when caustic soda prices and raw material costs remained very high. In PVC, imports in Europe of products from the United States put pressure on prices.

Despite a negative translation effect, EBITDA amounted to €82 million, 74% up on 4th quarter 2008, while the recurring operating result was positive at €14 million. This increase reflected improvement in market conditions, benefits from restructuring plans, and the contribution of growth projects. EBITDA margin stood at 7.6% in 4th quarter 2009 against 4% in 4th quarter 2008. As with the other quarters of 2009, free cash flow was positive at +€22 million.

POST BALANCE SHEET EVENTS

Acquisition of certain acrylic assets from Dow in North America On January 25th 2010, Arkema completed the acquisition of certain acrylic assets from Dow in North America, for a fair value consideration of US$50 million. Sales for this business totalled around US$450 million in 2009. The Clear Lake (Texas) acrylic monomer site is integrated within the Acrylics BU, while the downstream acrylic latex activities form the Emulsion Systems BU.

OUTLOOK

Arkema has begun 2010 well prepared and confident while remaining cautious in its economic assumptions. In this context, the Group will continue to improve its cost base, strictly manage its cash flow, develop its presence in Asia and increase its positions in high performance polymers and in renewable energies. These various initiatives should allow Arkema to generate in 2010 an EBITDA significantly above 2009. Over the next five years, Arkema will continue to enhance its portfolio of businesses and to reinforce its presence in fast growing regions. In a normalized environment, Arkema targets an EBITDA margin above 13.5% in mid-cycle conditions by 2014.

The consolidated financial statements as at December 31st 2009 have been audited by external auditors; an unqualified opinion is in the process of being issued.

About Arkema:

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

Forward-looking Statements

The information disclosed in this press release may contain forward-looking statements with respect to the financial conditions, results of operations, business and strategy of Arkema. Such statements are based on management's current views and assumptions that could ultimately prove inaccurate and are subject to risk factors such as, among others, changes in raw material prices, currency fluctuations, implementation pace of cost-reduction projects and changes in general economic and business conditions. Arkema does not assume any liability to update such forward-looking statements whether as a result of any new information or any unexpected event or otherwise. Further information on factors which could affect Arkema's financial results is provided in the documents filed with the French Autorité des marchés financiers. Balance sheet, income statement, cash flow statement, statement of changes in shareholders' equity and information by business segment included in this press release are extracted from the consolidated financial statements at December 31st 2009 closed by the Board of Directors of Arkema S.A. on March 3rd 2010. The consolidated financial statements at December 31st 2009 were prepared in accordance with international accounting standards as published by IASB (International Accounting Standards Board) at December 31st 2009 and also as endorsed by the European Union at December 31st 2009. Financial information related to 2008 and 2009 is extracted from the consolidated financial statements of Arkema reprocessed, where necessary, to include the impact of discontinued activities. Quarterly financial information is not audited. Business segment information is presented in accordance with Arkema's internal reporting system used by the management.

Source: Arkema


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