Arkema: 3rd Quarter 2008 Results

Regulatory News:

Arkema (Paris:AKE):

THIRD QUARTER 2008 PERFORMANCE

At the close of the Board of Directors meeting which reviewed Arkema’s consolidated financial statements for the third quarter of 2008, Thierry Le Hénaff, Chairman and CEO of Arkema, stated:

"The good results of the 3^rd quarter demonstrate the further structural improvements ongoing throughout the group and its ability to resist to a tougher economic environment. This new EBITDA growth is supported by high price increases and also the productivity and focused growth projects. These projects should generate €100 million EBITDA gain expected for 2008. Over the first nine months, the EBITDA increased strongly by 10% compared to the previous year.”

Sales in the 3^rd quarter 2008 rose by 5.1% to €1,450 million. The significant price increases in all business units of the group (+11.4%) have more than compensated for weak demand in some end markets and the unfavorable impact of change and variations in the scope of business.

EBITDA was up by 5.5% to €134 million against €127 million in the 3^rd quarter 2007. Implementation of productivity initiatives, start-ups of new units and development of new products have continued during the 3^rd quarter, in line with the targeted of €100 million EBITDA gain from structural projects over 2008. This performance was achieved in a more challenging economic environment characterized by a slowdown of demand in the construction and automotive sectors, the strong volatility of raw materials and the negative impact of the euro/US Dollar exchange rate.

Recurring operating income amounted to €72 million, taking into account higher depreciation charges.

Non-recurring items stood at €(8) million in the 3^rd quarter 2008 against €(9) million last year.

Adjusted net income was stable at €47 million while net income (group share) was up 8% to €40 million.

SEGMENT PERFORMANCE

Vinyl Products sales rose by 12.8% to €378 million, against €335 million in the 3^rd quarter 2007, supported by price increases and a solid demand in caustic soda. Despite strong PVC price increases, the ethylene and natural gas costs continue to weigh heavily on unit margins. The segment’s EBITDA therefore stood at €7 million (against €18 million in the 3^rd quarter 2007). Productivity initiatives continue to be actively implemented and the strict control of fixed costs fully offset the effect of inflation on fixed costs over the third quarter.

Industrial Chemicals sales rose by 9.6% to €661 million in the 3^rd quarter 2008. This improvement was mainly due to the very significant price increases in every business unit in this segment which compensated for the impact on PMMA volumes of the slowdown in the automotive market and the somewhat limited impact of hurricanes in the United-States. EBITDA for this segment amounted to €86 million, which is a steady improvement over the third quarter 2007. This demonstrates the importance of the structural projects that were put in place such as the productivity measures implemented in Thiochemicals, Fluorochemicals and Acylics, the start-ups of new production units, new developments and the successful integration of Coatex.

Performance Products sales reached €410 million in the 3^rd quarter 2008, up by 4.5% excluding the translation effect and the impact of variations in the scope of business. EBITDA was stable at €44 million up 10% at constant scope of business. Productivity measures under implementation in Functional Additives and Polyamides and price increases in all business units of this segment which offset higher raw material costs, contributed to the stability of results despite the decrease of the US dollar versus the euro and the slowdown of construction which affected Functional Additives business.

MAIN RESULTS FOR THE FIRST NINE MONTHS OF 2008

CASH FLOW AND NET DEBT AT SEPTEMBER 30 2008

In the third quarter, the change in working capital was positive at +€27 million despite high raw material costs and their impact on sales price. Over the first nine months of the year, the change in working capital stood at €(91) million reflecting strong price increases and high raw material costs, together with the usual seasonality of business.

Cash flow related to operations and investments in the first nine months of 2008 stood at €(54) million against +€192 million in the first nine months of 2007, which included, in particular, proceeds from portfolio management operations amounting to +€136 million (compared to €(19) million related to acquisitions made in the first nine months of 2008).

Arkema has a credit line with a maturity in March 2013 for an amount of €1.1G. Net debt at the end of September stood at €580 million against €459 million at the end of December 2007, corresponding to a ratio of net debt on shareholders’ equity of 28%, which confirms the quality and strength of the balance sheet.

HIGHLIGHTS SINCE BEGINNING OF THIRD QUARTER 2008

Since the beginning of the third quarter, Arkema further implemented its growth projects with:

• the project for a new 2-ethyl hexyl acrylate production unit at Carling (France). This new 50,000 tonnes production unit will strengthen Arkema’s acrylic business,
• the expansion of its hydrazine hydrate and derivatives business with €10 million invested at ifs production site in Lannemezan (France),
• the successful start-up of the doubling of its hydrogen peroxide production capacity in Shanghai (China). This expansion to 80,000 tonnes/year of the production will enable Arkema to meet the demand of Asian markets.

Finally, as part of its efforts made to improve productivity, Altuglas International, a subsidiary of Arkema, announced the shutdown of its plant in Pomezia (Italy) which produced PMMA cast sheets and blocks.

OUTLOOK

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

"Since mid-October, we observe a sudden ongoing slowdown of demand in some markets, especially in the automotive and construction, amplified by destocking which strongly limits the visibility on the economic environment in the 4^th quarter of 2008. Fortunately, due to the ongoing action plan, 2008 EBITDA margin should be close to our 10% target.

In this context, Arkema’s priority is to continue to implement its structural projects especially in order to reduce significantly its fixed costs and to strictly manage its working capital by adjusting, if needed, the utilization of its production capacities. End of 2008, the cumulative fixed cost savings should exceed €330 million versus 2005.

In an uncertain and difficult environment, Arkema will accelerate the implementation of its strategy to increase its resistance. The quality of our balance sheet, our capacity to accelerate the transformation of the company and to improve its cost structure as well as new projects being considered are strong assets to face the year ahead.”

A presentation of the results is available in the "Results & Presentations” section of the Company’s website (www.finance.arkema.com).

FINANCIAL CALENDAR

BOARD REVIEWS OCTOBER 6, 2008 AFEP-MEDEF RECOMMENDATIONS

At its meeting on November 12^th 2008, the Board of Directors reviewed the AFEP-MEDEF recommendations, dated October 6^th 2008 regarding compensation for executive directors of listed companies.

The Board considers that these recommendations were consistent with the corporate governance principles of the company.

The Board decided that the AFEP-MEDE code which is modified to take into account these recommendations, will be the basis on which the company will prepare reports required by article L.225-37 of the French Commercial Code, as of the current year.

Disclaimer

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.

Quarterly financial information is not audited.

Business segment information is presented in accordance with Arkema’s internal reporting system used by the management.

The main performance indicators used are as follows:

Operating income: this includes all income and expenses of continuing operations other than financial result, equity in income of affiliates, and income taxes.

Other income and expenses (non-recurring items): these correspond to a limited number of well-identified non-recurring items of income and expense of a particularly material nature that the Group presents separately in its income statement in order to facilitate understanding of its recurring operational performance. These items of income and expense notably include:

• impairment losses in respect of property, plant and equipment and intangible assets,
• gains or losses on sale of assets,
• certain large restructuring and environmental expenses which would hamper the interpretation of recurring operating income,
• certain expenses related to litigation and claims or major damages, whose nature is not directly related to ordinary operations,
• costs related to the spin off of Arkema’s businesses.

Recurring operating income: this is calculated as the difference between operating income and other income and expenses as previously defined.

EBITDA: this corresponds to recurring operating income increased by depreciation and amortization (previously referred to as recurring EBITDA).

Adjusted net income: this corresponds to the net income - Group share adjusted for:

• other income and expenses, after taking account of the tax impact of these items,
• income and expenses from taxation of an exceptional nature, the amount of which is deemed significant,
• the net income from discontinued activities.

Working capital: this corresponds to the difference between inventories, accounts receivable, other receivables and prepaid expenses and income tax receivables on the one hand and accounts payable, other creditors and accrued liabilities and income tax liabilities on the other hand.

Net debt: this is the difference between current and non-current debt and cash and cash equivalents.

A global chemical player, Arkema consists of 3 coherent and related business segments: Vinyl Products, Industrial Chemicals, and Performance Products. Present in over 40 countries with 15,200 employees, Arkema achieves sales of 5.7 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.

THIRD QUARTER 2008 PERFORMANCE

SALES UP +5.1%

• +8.7% organic growth (at constant exchange rate and scope of business)
• Price increases in each business unit
• Slowdown of automotive and of construction markets affected volumes in PVC downstream, PMMA and Functional Additives.
• Volumes in some business units in Industrial Chemicals were affected by hurricanes in the US

EBITDA UP +5.5% AT €134m

• Estimated negative impact from the €/$ exchange rate conversion effect: €(4.5) million
• Limited contribution from M&A: acquisition of Coatex and PMMA (ex-Repsol) compensated by divestitures of urea formaldehyde resins and superabsorbant polymers business.

VINYL PRODUCTS

• Good demand in caustic soda
• Slowdown of construction in Europe
• Higher volumes in PVC compared to a low 3^rd quarter 2007 affected by shutdowns in Fos and Lavéra (France)
• Price increases to compensate for higher ethylene and natural gas prices but remaining margin squeeze in PVC
• Strong focus on costs (restructuring plans and ongoing productivity initiatives to compensate for inflation on fixed costs).

INDUSTRIAL CHEMICALS

• EBITDA up 14.7% and EBITDA margin at 13%
• Significant price increase in each of the business units
• Weaker automotive demand affected volumes in PMMA
• Volumes in some business units were affected by hurricanes in the US
• Significant contribution from growth projects (Fluorochemicals in Calvert-City and new developments in DMDS in Thiochemicals)
• Positive contribution from M&A with the successful integration of Coatex
• Benefits from restructuring plans implemented at Pierre-Bénite (Fluorochemicals), Lacq (Thiochemicals) and Carling (Acrylics)
• Negative impact of US dollar vs. euro exchange rate
• Acrylics remain in low cycle conditions with a slight increase in margins

PERFORMANCE PRODUCTS

• +4.5% organic growth sustained by strong price increases in each business unit to compensate for higher raw material costs
• +10% EBITDA growth at constant scope of business
• Slowdown in construction affected results of Functional Additives
• Negative impact of US dollar vs. euro exchange rate
• Strong contribution from restructuring initiatives in polyamides and Functional Additives

NON RECURRING ITEMS:

• €(8) million compared to €(9) million in 3Q’07.

• Payment of dividend of €46 million
• Impact of the share capital increase reserved for employees of €19 million
• Buyback of 659,274 shares for €22 million (out of which 358,444 shares were bought in Q3’08 for €11 million)
• 28% gearing (32% gearing including € 84 million NR pre spin-off)

OUTLOOK:

• Over the first nine months, the EBITDA increased strongly by 10% compared to the previous year
• Since mid-October, sudden ongoing slowdown of demand in some markets, especially in the automotive and construction, amplified by destocking which strongly limits visibility on the economic environment in the 4^th quarter of 2008.
• Fortunately, due to the ongoing action plan, 2008 EBITDA margin should be close to the 10% target.
• Arkema’s priority is to continue to implement its structural projects especially in order to reduce significantly its fixed costs and to strictly manage its working capital by adjusting, if needed, the utilization of its production capacities.
• End of 2008, cumulative fixed cost savings should exceed €330 million versus 2005
• Arkema will accelerate the implementation of its strategy to increase its resistance.
• The quality of its balance sheet, its capacity to accelerate the transformation of the company and to improve its cost structure as well as new projects being considered are strong assets to face the year ahead.

HIGHLIGHTS SINCE JULY 1^ST:

• Project for a new 2-ethyl hexyl acrylate production unit at Carling (France) to strengthen Arkema’s acrylic business. The 50 ktonnes unit will come on stream in fall 2009.
• Arkema invested €10 million to expand its hydrazine hydrate derivatives production capacities in Lannemezan (France).
• Start-up of the expansion of the hydrogen peroxide production capacity in Shanghai (China). The doubling of the Shanghai’s production capacity at 80,000 tonnes/year will enable Arkema to meet the growing demand of Asian markets and increases Arkema’s global hydrogen peroxide production capacity to approximately 400,000 tonnes/year.
• Altuglas International announced the shutdown of its plant in Pomezia (Italy) which produced PMMA cast sheets and blocks. The current production will be split between the two other European cast sheet plants of Altuglas International (Saint-Avold in France and Bronderslev in Denmark).

ARKEMA Financial Statements

Consolidated financial statements - At the end of September 2008