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ARKEMA: 2nd Quater 2009 Results

Published on 2009-08-13. Author : SpecialChem

2ND QUARTER 2009 ACTIVITY

Sales stood at €1,167 million against €1,509 million in the 2nd quarter 2008. This 22.7% decline was due primarily to a drop in volumes (-18.2%), as demand remained weak in many market segments, and to further de-stocking at customers . The price effect (-6.5% on average) observed primarily in PVC and Acrylics reflects the very sharp drop in the cost of ethylene and propylene in the 2nd quarter 2009 compared to the 2nd quarter 2008. The translation effect was positive (+2.8%) as a result of the dollar's strengthening vs the euro, and the effect of variations to the scope of business remained limited (-0.7%). The decline in volumes in the 2nd quarter 2009, lower than in the 1st quarter, reflected a recovery in the activity in China and a progressive reduction in de-stocking.

EBITDA stood at €70 million against €158 million in the 2nd quarter 2008. The impact of the sharp drop in volumes was partly offset by the ongoing implementation of productivity measures and a reduction in overhead costs which account for a €86 million improvement over the 1st six months of 2009. Recurring operating income stood at €2 million, and included depreciation of €68 million, €7 million up over the 2nd quarter 2008.

Non-recurring items accounted for -€94 million, and primarily included costs related to the restructuring plans announced in the 2nd quarter 2009 in North America and in the methacrylates activity in Europe2.

Net income (Group share) therefore stood at -€114 million against +€60 million in the 2nd quarter 2008.

SEGMENT PERFORMANCE

Vinyl Products sales stood at €266 million euros, 33% down on the 2nd quarter 2008. EBITDA stood at -€7 million against €14 million in the 2nd quarter 2008. This quarter was marked by a sharp decrease in caustic soda prices, the impact of which was eased by a significant improvement in PVC prices and volumes compared to the 1st quarter 2009 and by the productivity measures undertaken in downstream activities.

Industrial Chemicals sales stood at €543 million against €682 million in the 2nd quarter 2008, reflecting weak demand. EBITDA for the segment remained sound at €75 million against €96 million in the 2nd quarter 2008 thanks to a resilient performance in Fluorochemicals, Thiochemicals and Specialty Acrylic Polymers, with unit margins for Acrylics and PMMA remaining under pressure. The many productivity measures undertaken in particular in PMMA, Acrylics and Thiochemicals continued to sustain the segment's performance.

Performance Products sales stood at €355 million in the 2nd quarter 2009, 17% down on the 2nd quarter 2008 (€430 million). Weak demand in the automotive and construction sectors continued to affect strongly sales volumes in Technical Polymers. EBITDA stood at €23 million against €61 million in the 2nd quarter 2008, with major fixed costs savings in the segment's 3 activities helping mitigate the impact of lower demand.

The implementation of the project is subject to the legal information and consultation process involving the trade unions.

The Corporate segment reported EBITDA of -€21 million in the 2nd quarter 2009, and included an impact of -€15 million related to measures taken to optimize inventory levels.

CASH FLOW AND NET DEBT AT JUNE 30TH 2009

In the 1st half 2009, free cash flow stood at €135 million against -€33 million at end of 1st half 2008. Arkema therefore confirms its ability to generate cash, which is its priority for 2009. This cash flow included €125 million recurring capital expenditures, €41 million expenses related to restructuring , and a +€220 million variation in working capital. This sharp reduction of working capital is the result of lower raw material costs and volumes, a significant effort to optimize inventory levels, and very tight credit control.

After taking account of the impact of portfolio management operations (-€28 million) and the payment of a €0.60 euro dividend per share (-€36 million), the Group's net debt at end June 2009 stood at €420 million against €435 million at March 31st 2009 and €495 million at December 31st 2008. This amount represents less than 1.5 times the EBITDA for the last 12 months, and illustrates Arkema's initiatives to maintain the quality and strength of its balance sheet.

2ND QUARTER 2009 HIGHLIGHTS

In the 2nd quarter 2009, Arkema announced two new major projects to help improve structurally its productivity:

In May 2009, Arkema announced the restructuring of its activities in North America in order to adapt to the current economic situation and boost its long-term competitiveness. The loss of positions, a significant reduction in overhead costs, and the optimization of the organization will result in savings of US$40 million (€30 million) from 2010, to reach US$50 million (€37 million) in 2012. In June 2009, Arkema presented a restructuring project3 aimed at consolidating its MMA/PMMA sector in Europe, which should entail the shutdown of MMA (methyl methacrylate) production at the Carling site (France) and the refocusing of PMMA sheet production at the Bernouville site (France) on higher added value products. These various restructuring operations should result in the loss of 239 positions.

OUTLOOK

Thierry Le Hénaff, Chairman and CEO of Arkema, commenting on the outlook at the close of the Board of Directors meeting, stated:

"The global economic environment half-way through the year remains highly challenging overall despite a few more positive signs, including an improvement in volumes in China and a gradual reduction in destocking at our customers. Against this background, we remain very cautious in our economic environment assumptions for the 2nd half of the year, and will continue to implement our progress actions with the same determination".

Accordingly, Arkema will continue to adapt its organization and will pursue its efforts to reduce fixed costs which should amount to €170 million in 2009, in line with a new target of €600 million cumulated fixed costs over the 2006 - 2010 period.

Meanwhile, for Arkema the priority remains managing cash flow rigorously and maintaining the Group's financial strength. The Group's target for 2009 has been revised upward and is to generate free cash flow of the order of €80 million. In this regard, Arkema will continue to improve its working capital and will limit its investments to €260 million in 2009.

"Over and above these efforts to adapt to the crisis, we are continuing the in-depth transformation of the company, launched at the time of the spin off in 2006. We are convinced that all our efforts during the crisis together with the quality of the projects we have announced will enable us to emerge from the crisis stronger in terms of competitiveness, innovation, presence in Asia, and quality of our activities portfolio" concluded Thierry Le H?aff.

A global chemical company, Arkema consists of three businesses: Vinyl Products, Industrial Chemicals, and Performance Products. Arkema reports sales of 5.6 billion euros. Arkema has 15,000 employees in over 40 countries and six 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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