Industry News

Strong Positive Free Cash flow(+€96M)

Published on 2009-05-20. Author : SpecialChem

The Board of Directors of Arkema, chaired by Chairman and CEO Thierry Le Hénaff, met on May 12th 2009 to review Arkema's consolidated accounts for the first quarter 2009. Thierry Le Hénaff stated, commenting on the results:

«The very sharp drop in demand combined with de-stocking at our customers observed since November 2008 continued throughout the first quarter 2009. In this context, positive cash flow generation of some €100 million, the good performance of the Industrial Chemicals segment, and debt reduction to 21% of shareholders' equity are the direct result of the strong dynamic of internal projects and the quick rallying of teams to address these highly challenging market conditions.

For the coming months, visibility regarding the evolution of market conditions remains very low, and except for some more positive signs in China, we cannot see any noticeable improvement in the economic environment. In this context, we will be pursuing our efforts to adapt production capacities and enhance productivity with the same intensity in the coming weeks and months. »


Sales stood at €1,092 million against €1,492 million in the 1st quarter 2008, down 26.8%. The sharp downturn in demand in many end market together with de-stocking at customers which began in the 4th quarter 2008 continued throughout the 1st quarter, leading to a sharp reduction in volumes for most activities (-27.1%). On average, the price effect was negative (-1.3%), due primarily to lower prices in PVC and Acrylics. The currency translation effect was positive, primarily as a result of the rise of the US dollar vs the euro (+2.2%), and the effect of changes in the scope of business remained small (-0.6%).

EBITDA stood at €57 million euros in the 1st quarter 2009 against €159 million in the 1st quarter 2008, in a very poor economic environment. The impact of the sharp decline in volumes was partly offset by restructuring plans and new projects. The structural fixed cost savings were in line with the stated target of €110 million over the year. These gains were complemented by operational measures to adapt to weak demand.

Recurring operating income stood at -€12 million and includes depreciation of €69 million, up by €10 million compared to the 1st quarter 2008. The increase in depreciation is the result of capital expenditures exceeding depreciation because of asset impairment losses booked prior to Arkema's stock market listing in 2006 and the appreciation of the US dollar vs the euro.

Non-recurring items stood at -€4 million in the 1st quarter 2009 and primarily include restructuring costs. Net income (Group share) stood at -€35 million against €72 million in the 1st quarter 2008.


Vinyl Products sales stood at €257 million, 34% down on the 1st quarter 2008, with high caustic soda prices during the quarter unable to compensate for the sharp decline in volumes across all product lines as well as the drop in PVC prices. The deterioration in demand in construction and the de-stocking reported in the 4th quarter 2008 continued in the 1st quarter 2009. EBITDA stood at €2 million (against €17 million in the 1st quarter 2008), with lower ethylene prices and the restructuring plans undertaken particularly in the two downstream PVC activities in France and in Europe partly offsetting the decline in volumes.

Industrial Chemicals sales stood at €509 million against €675 million in the 1st quarter 2008. This reduction of almost 25% in the segment's sales reflects the impact on volumes of the significant contraction in demand in most end markets. The strong pressure on Acrylics sales prices due to lower propylene costs was partly offset by increases in sales prices across the segment's other business units and by a positive currency translation effect. The segment's EBITDA showed good resilience at €73 million (against €94 million in the 1st quarter 2008) despite the downturn in demand, low unit margins in Acrylics, and a very deteriorated situation in MMA in Europe. Good performance of Thiochemicals and Fluorochemicals and productivity measures launched in Acrylics, PMMA and Thiochemicals in particular contributed to limit the impact of the economic environment on the segment's results.

Performance Products sales stood at €323 million in the 1st quarter 2009, 24% down on the 1st quarter 2008. Increases in average sales prices across the segment's activities and the positive currency translation effect partly compensated for the impact of the downturn in demand in construction, automotive and electronics which heavily weighed on volumes in Functional Additives and Polyamides. EBITDA stood at €17 million against €58 million in the first quarter 2008, with fixed cost savings resulting from restructuring plans and the strict control of overhead costs helping to compensate partially for the very low demand. The Corporate segment totaled EBITDA of -€35 million in the 1st quarter 2009, which included in particular the impact of the sale in the 1st quarter of inventories produced with high-cost raw materials estimated at approximately -€25 million.


In the 1st quarter, free cash flow1 stood at €96 million (against -€101 million in the 1st quarter 2008). Arkema therefore confirms its ability to generate cash flow in a challenging environment. Net cash flow (from operations and investments), which includes the impact of portfolio management amounting to -€31 million, stood at €65 million against -€114 million in the 1st quarter 2008. Cash flow includes €52 million recurring capital expenditures and a reduction of working capital of +€121 million resulting both from lower raw material costs and a consolidation of actions to optimize working capital.

By end of March 2009, the group's net debt dropped to €435 million against €495 million at December 31st 2008, i.e. a very low gearing ratio of 21%. Arkema thereby demonstrates its commitment to maintain the quality and solidity of its balance sheet in today's highly challenging economic environment.


In the 1st quarter, Arkema announced the shutdown of production, due end 2009, for methyl ethyl ketone at its La Chambre site (France) which has been experiencing structural problems. This project would involve the sale of the marketing and sales assets of this business to Sasol Solvents Germany GmbH2. Arkema also continued to refocus its portfolio with the acquisition of complementary product lines strengthening its specialty businesses. In this respect Arkema finalized the acquisition of the organic peroxides business of Geo Specialty Chemicals representing annual sales of approximately US$30 million, and reinforced its position in filtration for the agro-food sector with the acquisition by CECA (Specialty Chemicals BU) of Winkelmann Mineraria, which generates annual sales of the order of €6 million. Meanwhile, the vinyl compounds activity based on the Vanzaghello site (Italy), accounting for annual sales of the order of €22 million, was divested.

Finally, Arkema announced the signature with Dyneon, a world leader in fluorinated polymers, of a long-term contract for the supply in Europe by Arkema of HCFC-22. HCFC-22 is to be produced on the Pierre-Bénite site (France) from 2010.


In order to adapt to the current economic situation and boost the long-term competitiveness of its activities in North America, Arkema has announced a restructuring plan within its American subsidiary Arkema Inc. Headcount reductions, significant cost-cutting and process efficiency improvement will generate cost savings of €30 million in 2010, to achieve total annual savings of €37 million by 2012.

Additionally, Arkema continued to refocus its Functional Additives business with the divestment of two noncore activities based on its Guangzhu site in China (ceramic opacifiers and catalysts for polyester resins) representing annual sales of the order of €13 million.


Visibility regarding market conditions in the coming months remains very limited. Arkema assumes that the global economic environment will remain highly challenging throughout the year even if volumes have been improving in China in recent weeks.

In this environment, the top priority remains a very strict management of cash flow and keeping the group's financial strength. Arkema confirms its target to generate a positive free cash flow in 2009.

The work already undertaken to reduce working capital will continue in order to generate between €100 and 150 million cash for the year. Capital expenditures should be lower than €270 million in 2009 and will focus primarily on maintenance work (MHSE3) and on Fluorochemicals projects in China.

Meanwhile, over and above its efforts to adapt to the economic environment, Arkema will continue its indepth transformation by improving its cost structure, consolidating its best product lines, and driving innovation in high performance polymers as well as sustainable development areas. As stated at the beginning of the year, these internal projects should generate EBITDA gains of at least €85 million for the full year. Arkema confirms its target to reduce fixed costs by €550 million in 2010 compared to 2005.


Documents and information regarding the Annual General Meeting on June 15th 2009 will be available to the shareholders in accordance with the current legal and regulatory conditions. The notice of meeting is due out on May 25th 2009.

Meanwhile, in the light of the current unprecedented economic environment, following a proposal from its Chairman, the Board of Directors has decided not to award stock options this year. It has been decided to put in place a performance share award scheme only, the definitive award of such shares being subject to performance criteria.

The Chairman and Chief Executive Officer as well as the Executive Committee members have decided that they would forego this 2009 performance share award.Arkema is a global chemical player consisting of three business segments: Vinyl Products, Industrial Chemicals, and Performance Products. Established in over 40 countries with 15,000 employees, Arkema achieves sales of 5.6 billion euros. With its 6 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 materials 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 March 31st 2009 closed by the Board of Directors of Arkema on May 12th 2009.

Quarterly financial information is not audited.

The business segment information is presented in accordance with Arkema's internal reporting system used by the management.

Source: Arkema

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