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Arkema Reports 3rd Quater 2010 Results

Published on 2010-11-11. Author : SpecialChem

Thierry Le Hénaff, Chairman and CEO of Arkema, stated: "Arkema reports its best historical quarterly Performance in 3rd quarter 2010 and achieves 16% EBITDA margin supported by excellent progress in Industrial Chemicals and Performance Products, with Vinyl Products continuing to lag behind in a challenging environment.

Particularly strong growth in sales, at +41%, among the highest in the chemical sector, is a source of great satisfaction for all Arkema employees. This reflects Arkema's successful repositioning in emerging countries and in tomorrow's technologies, in particular renewable energies and high Performance polymers, as well as the contribution of the acrylics business acquired from Dow at the beginning of the year."

3rd quarter 2010 Performance

The market conditions prevailing in 3rd quarter this year followed the trend of those in the 2nd quarter and were significantly up on those of 3rd quarter last year. The seasonality effect resulting from the traditional lower activity in August in Europe was less pronounced this year. Demand in Asia, where the Group now achieves 20% of its sales, remained very strong.

Sales in 3rd quarter 2010 reached €1,559 million, 41% up on 3rd quarter 2009. This increase results from a 10.5% growth in volumes, sustained by the many developments in fast growing markets (new energies, high Performance biosourced polymers, etc.). In most product lines, volumes recovered their pre-crisis levels. Arkema also successfully implemented its sales price increase policy, which has yielded a very positive price effect of +13.4%. The acrylic activities purchased from Dow helped increase sales by 11.1%. Finally, the +6.5% translation effect primarily reflected the change in the US dollar vs euro exchange rate.

At €246 million, EBITDA reached its highest historical level, even outperforming 2nd quarter 2010. EBITDA was multiplied by 2.4 compared to 3rd quarter 2009, reflecting the policy to improve margins, more favorable market conditions, and the strong contribution of initiatives aimed at transforming the Group. The acrylic assets from Dow yielded a sound Performance, the production plants recently opened in Asia ran at full capacity, and developments in emerging applications continued to grow.

EBITDA margin rose to 15.8% of sales, overtaking the previous record of 15.0% in 2nd quarter 2010 (against 9.2% in 3rd quarter 2009).

Income taxes of -€40 million for the quarter accounted for 23% of recurring operating income. Net income (Group share) rose to €130 million (against -€3 million in 3rd quarter 2009), representing 8.3% of sales.

Segment Performance in 3rd quarter 2010

Vinyl Products (18% of Group sales): SLIGHT IMPROVEMENT IN A CHALLENGING ENVIRONMENT The relative share of Vinyl Products continued to fall, accounting for 18% of the Group's overall sales in 3rd quarter. Although still difficult, market conditions in construction in Europe showed a slight improvement over the previous year. Against this background, PVC prices and margins rose compared to 3rd quarter 2009 and 2nd quarter 2010. Caustic soda prices also rose. Vinyl Products sales stood at €284 million against €248 million in 3rd quarter 2009, up 14%, while EBITDA was positive at €4 million for the first time in the last 5 quarters despite the traditional seasonality effect linked to the construction sector in Europe. The Performance of Qatar Vinyl Company, in which Arkema owns a 13% stake, remained very good. Refocusing and improving competitiveness remain the segment's priorities for the months and years to come.

Industrial Chemicals (52% of Group sales): EXCELLENT GROWTH AND PROFITABILITY Industrial Chemicals sales stood at € 800 million, 52% up on 3rd quarter 2009. At constant scope of business, sales grew by 29%. In addition to better market conditions, the major improvement in sales was sustained by the contribution of new plants in Asia, the selling price increase policy, and a positive translation effect primarily related to the evolution of the US$/€ exchange rate.

EBITDA stood at €159 million, i.e. double the 3rd quarter 2009 figure. Fluorogas and hydrogen peroxide production plants in Asia ran at full capacity, while the acrylic activities acquired from Dow reported a good Performance. The improvement in the results also reflected the increase in the margins of acrylic monomers compared to their 3rd quarter 2009 trough level, the improved competitiveness of Methacrylates in Europe, and the good Performance of Thiochemicals and Fluorochemicals.

In line with 2nd quarter 2010, EBITDA margin reached a very high level, at 19.9% (15.3% in 3rd quarter 2009). Performance Products (30% of Group sales): RECORD EBITDA WITH 20% EBITDA MARGIN Performance Products sales stood at €470 million, compared to €324 million in 3rd quarter 2009. Volumes, 22% up, were supported by strong demand in Asia, in particular in Technical Polymers, and by the ongoing developments in fast-growing emerging applications.

EBITDA continued its steady improvement since 4th quarter 2009, reaching a record €92 million in 3rd quarter 2010, namely 2.8 times the 3rd quarter 2009 level. In a favorable market environment, this reflected the success of the sales price increase policy, the contribution of the latest developments in photovoltaics and high Performance biosourced polymers, and a positive translation effect.

EBITDA margin reached 19.6% against 10.2% in 3rd quarter 2009, its highest historical level since Arkema's spin off.

Cash Flow and Net Debt at September 30th 2010

STRONG CASH FLOW GENERATION IN 3rd quarter 2010

In 3rd quarter 2010, Arkema generated highly positive free cash flow of +€96 million. Over the first 9 months of the year, free cash flow reached +€110 million despite the -€154 million negative variation of working capital related to the evolution of sales. Arkema nevertheless reduced its working capital on sales ratio to 15.0%, against 16.2% at December 31st, 2009 and 18.2% at September 30th, 2009.

Free cash flow at September 30th 2010 also included capital expenditure of €185 million and -€51 million outflows related to past restructuring operations.

After taking account of the impact of mergers and acquisitions, net cash flow at end September was positive at €70 million.

Net debt dropped to €250 million against €341 million at December 31st 2009, i.e. 12% gearing.

Highlights of 3rd quarter 2010

The 3rd quarter 2010 saw Arkema rewarded for its innovations on two occasions:

  • In the pre-plant soil treatment market, Arkema, the world leader in Thiochemicals, was granted in July 2010 registration by the US Environmental Protection Agency for Paladin®, a new sulfur-based fumigation agent. Paladin® soil fumigant has no ozone depletion potential, a low global warming potential (GWP), and is short-lived in the atmosphere.
  • With Kynar Aquatec®, Arkema was presented with the Pierre Potier Prize which rewards companies for their innovative initiatives in the field of sustainable development. This Kynar® water-borne fluorinated resin formulation is used to manufacture roof coatings that reflect sunlight and hence reduce the cost of air-conditioning and yield major energy savings.

Arkema also continued to implement its growth strategy in Asia with the announcement, in September, of the construction in China of an acrylic emulsions production plant designed to boost the Group's offering in the region's coatings market. Due to come on stream at end 2012, this new plant represents $30 million capital expenditure. It will be built on the Changshu industrial platform, near Shanghai.

Post Balance Sheet Events

Arkema launched a €500 million bond issue in October 2010. With an October 2017 maturity date and a 4% interest rate, this loan allows Arkema to benefit from current favorable market conditions and to initiate its long-term refinancing by allowing it to diversify its sources of funding and extend the maturity of its debt. Arkema announced the construction, on its Carling site (France), of a new production line of DMAEA, an acrylic acid derivative, base product for flocculants used in wastewater treatment, together with a plan to upgrade the site's energy production equipments. The capital expenditures will amount to a total of €30 million. The new DMAEA production line, which is due to start-up in 1st half 2012, will enable to increase the site production capacity by 30% and to strengthen Arkema's position as a leader in Europe on this product used in growing markets in Europe and Asia.

OUTLOOK

Taking into account the excellent results reported in 1st 9 months, market conditions which remain well oriented and the traditionally marked seasonality at the end of the year, Arkema defines more precisely its 2010 EBITDA target and increases it significantly to around €740 million. This target also takes into account the impact of external strikes (refineries and Marseille harbor) related to national pension reforms in France, estimated at -€20 million, which mainly concerns Vinyl Products. This Performance should result in an EBITDA margin of 12.5%, largely above the previous best Performance achieved in 2007 (9.1%) and above the 12% target set out at the time of the spin off five years ago.

About Arkema:

A global chemical company and France's leading chemicals producer, Arkema is building the future of the chemical industry every day. Deploying a responsible, innovation-based approach, we produce state-of-the-art specialty chemicals that provide customers with practical solutions to such challenges as climate change, access to drinking water, the future of energy, fossil fuel preservation and the need for lighter materials. With operations in more than 40 countries, 14,000 employees and seven research centers, Arkema generates annual revenue of around €5.5 billion and holds leadership positions in all its markets with a portfolio of internationally recognized brands.

Source: Arkema


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