Arkema: Full year 2013 results

Regulatory News:

Arkema (Paris:AKE):

• € 6.1 billion sales close to 2012 sales at constant scope of business and foreign exchange rate¹, supported by volumes up by +1.4 %
• Solid EBITDA margin close to 15%
• € 902 million EBITDA (down 7% at constant scope of business and exchange rate¹)
  • Sharp improvement in High Performance Materials results in Q4, but full year performance down compared to the high basis of comparison in 2012
  • 5% EBITDA growth in Coating Solutions supported by capex and improvement in the decorative paint market in North America
  • Performance of Industrial Specialties impacted by market conditions in Fluorogases
• € 923 million net debt (1x EBITDA)
• 4Q’13: adjusted net income up 4.5% on last year, driven by sharp improvement in High Performance Materials
• Proposed dividend of €1.85 per share (€1.80 for 2012)

The Board of Directors of Arkema met on 3 March 2014 to close the consolidated accounts of Arkema for 2013 and the annual financial statements of the parent company. At the close of the meeting, Chairman and CEO Thierry Le Hénaff stated:

"With a solid EBITDA margin of around 15%, Arkema in 2013 demonstrated its ability to adapt to a less favourable environment than in 2012.

In this context, Arkema continued to strengthen its relationships with its major commercial partners, controlled its fixed costs rigorously, and continued to optimize its industrial operations. The Group also continued to resolutely implement its long-term strategy through a large number of projects which will bear fruit in the near future: let me mention, for example, the construction of the thiochemicals platform in Malaysia, the announcement of our first industrial investment in the Middle East and the acquisition of Jurong’s acrylic assets in China, all of which are highly promising projects that demonstrate our know-how.

The quality and diversity of our projects bolster our confidence in our ability to achieve our medium-term targets and illustrate the Company’s potential for further value creation.”

¹ Translation effect only

2013 KEY FIGURES

* For 2012, adjusted net income for continuing operations (excluding the impact of vinyl activities divested beginning July 2012).

FULL YEAR 2013 ACTIVITY

Sales reached €6,098 million, close to 2012 sales at constant scope of business and exchange rate. Volumes grew by +1.4%, supported mainly by the Coating Solutions segment which benefited from growth capex in acrylic monomers and a gradual improvement in demand in decorative paints in North America. The -2.0% price / product mix effect mostly reflects more challenging market conditions in fluorogases and a less favourable product mix in High Performance Materials. The -1.9% scope of business effect corresponds primarily to the divestment of the tin stabilizer business. The translation effect (-2.1%) is essentially related to the significant decline of the US dollar and yen against the euro.

In a mixed economic environment that was overall less favourable than last year in particular in Europe, Arkema proved resilient and achieved €902 million EBITDA (€996 million in 2012). Higher volumes and productivity efforts, which helped offset three quarters of the inflation on fixed costs, partially compensated for pressure on margins in fluorogases and a less favourable product mix in High Performance Materials. The scope of business effect mostly related to the divestment of tin stabilizers had a -€13 million negative impact. Finally, the impact of exchange rate variations primarily related to the weakening of the US dollar against the euro, resulted in a -€17 million translation effect, together with a transaction effect that could be estimated at a similar amount.

EBITDA margin held up well, remaining close to 15%, thereby confirming the quality of the portfolio of businesses.

Recurring operating income stood at €588 million against €678 million in 2012, after deduction of €314 million depreciation and amortization (€318 million in 2012), slightly down on last year. The increase in depreciation and amortization due primarily to the start-up of new production plants was fully offset by the absence of exceptional depreciation in 2013, the translation effect related to the decline of the US dollar against the euro, and the impact of the divestment of the tin stabilizer business.

Non-recurring items amounted to -€205 million. They mostly corresponded to the definitive exit of vinyl businesses for a net total amount of -€148 million and restructuring charges totalling -€38 million primarily linked to restructuring operations in the Coating Solutions segment and in particular the project to close the Chauny site (France).

The financial result stood at -€55 million, stable compared to 2012 (-€54 million). It included primarily the cost of debt for which the average interest rate stood at around 3% in 2013.

Income taxes amounted to €161 million in 2013 (€186 million in 2012), representing a 27.4% tax rate on the recurring operating income. This rate reflects the geographic breakdown of the results, in particular the Group’s strong presence in North America.

Net income Group share stood at €168 million against €220 million in 2012. Excluding the impact of exceptional items, the adjusted net income amounted to €368 million, i.e. €5.87 per share.

Taking into account the Group’s confidence in its mid-term prospects and in the strength of its balance sheet, the Board of Directors has decided to propose to the next shareholders Annual General Meeting on 15 May 2014 the payment of a €1.85 dividend per share (€1.80 per share in 2012), representing a payout ratio of 32% in line with its objective to distribute 30% of its adjusted net income. The ex-coupon date has been set for 19 May 2014, with the dividend payment taking place from 22 May 2014.

2013 SEGMENT PERFORMANCE

HIGH PERFORMANCE MATERIALS

Although significantly up in 4^th quarter compared to 4^th quarter 2012, the results of the High Performance Materials segment over the full year remained down compared to the high basis of comparison in 2012. They reflect in particular delays in some oil and gas projects as well as more challenging market conditions in photovoltaics. Excluding the impact of both these specific cases, the segment’s performance was strong, sustained by the development of new applications and a positive momentum in Asia.

High Performance Materials sales reached €1,842 million, against €2,101 million in 2012. This 12.3% decrease is the result of the impact of portfolio management and in particular the divestment of the tin stabilizer business on 1^st October 2012 (-6.4%), and of the translation effect primarily related to the weakening of the US dollar and the yen against the euro (-1.9%). Less favourable market conditions in the fast-growing oil and gas and photovoltaics markets impacted the product mix and volumes, which are slightly down over the year.

EBITDA stood at €316 million against €361 million in 2012, while EBITDA margin remained constant at 17.2%, close to the segment’s 18% target for 2016.

INDUSTRIAL SPECIALTIES

The results of the Industrial Specialties segment were impacted by more challenging market conditions in fluorogases and in PMMA in Europe, while the Thiochemicals and Hydrogen Peroxide activities achieved a stable performance despite the impact of the major year-end turnarounds in Lacq and in Jarrie (France) which affected the segment’s performance in 4^th quarter.

Industrial Specialties sales stood at €1,993 million against €2,096 million in 2012. At constant scope of business and foreign exchange rate, this 3% decline mostly reflects, in fluorogases, adverse weather conditions in 2^nd quarter 2013 combined with increased competitive pressure in some gases, and, in PMMA, more challenging market conditions in Europe. In North America, PMMA benefited from the gradual rebound of construction and the healthy situation in automotive.

EBITDA stood at €340 million against €399 million in 2012, while EBITDA margin remained at a high level at 17.1% (19% in 2012) in line with the segment’s 2016 target which took account of a normalization of some unit margins primarily in fluorogases.

COATING SOLUTIONS

The Coating Solutions segment continued to grow, with EBITDA 5% up on last year, supported by its strong presence in North America as well as organic growth investments.

Coating Solutions sales achieved €2,224 million, 2.3% up on 2012. Volumes grew significantly (+4.6%), sustained both by increasing demand in the decorative paint market in the United States and in Asia, and by the growth capex made in acrylic monomers on the Clear Lake (Texas) and Carling (France) sites. The translation effect, primarily due to the weakening of the US dollar against the euro, was negative at -2.7%.

EBITDA reached €292 million, significantly up on 2012. Growth in volumes and significant productivity efforts made across the segment in particular in coating resins helped offset the negative impact of exchange rates and the relative decrease, compared to 2012, of unit margins in acrylic monomers. Coatex’s rheology additive activities and Sartomer’s photocure resin business both achieved good performance, supported by innovation, geographic expansion, and their positioning in high added value specialty activities.

CASH FLOW AND NET DEBT AT 31 DECEMBER 2013

In 2013, excluding non-recurring items and the impact of portfolio management operations, Arkema generated €322 million recurring cash flow (€359 million in 2012), representing 36% of EBITDA, stable compared to 2012. This includes €329 million recurring capex and excludes €193 non-recurring items related in particular to restructuring expenditure and to €152 million exceptional capex corresponding primarily to three major industrial projects (construction of the Thiochemicals platform in Malaysia, Lacq 2014 project, and conversion of mercury electrolysis to membrane electrolysis in Jarrie).

After deduction of non-recurring items, free cash flow² stood at €129 million.

Net debt amounted to €923 million at 31 December 2013, against €900 million on 31 December 2012. Gearing stood at 39%. It includes primarily the payment of a €1.80 dividend per share totalling €113 million, and the net impact of portfolio management operations amounting to €51 million corresponding mostly to the consequences of the definitive exit of vinyl businesses.

4^TH QUARTER 2013

* For 2012, adjusted net income for continuing operations (excluding the impact of the vinyl activities divested beginning of July 2012).

² Cash flow from operations and investments excluding the impact of portfolio management.

In 4^th quarter 2013, Arkema achieved €162 million EBITDA. With €68 million EBITDA, +58% up, and a 14.6% EBITDA margin, the results of the High Performance Materials segment were significantly up on 4^th quarter 2012, sustained by sound demand in the oil and gas sector for the Filtration and Adsorption activity. The Coating Solutions segment continued to improve, with EBITDA +16% up on 4^th quarter 2012, sustained by organic growth investments. Finally, as announced, the results of the Industrial Specialties segment were impacted by ongoing challenging market conditions in fluorogases and by one-off technical events in two Thiochemicals plants (Lacq in France and Beaumont in the United States).

Sales amounted to €1,411 million and grew by 1.3% at constant scope of business and foreign exchange rate, due mostly to higher volumes in the High Performance Materials segment. EBITDA margin remained stable at 11.5%.

PROJECT ANNOUNCED SINCE 1^ST JANUARY 2014

Arkema announced in January 2014 the creation of Sunke, a joint venture in which Arkema will have a majority interest, comprising the assets of Jurong’s acrylic acid production site in Taixing opened in 2012, and currently with an annual 320,000 t / year capacity. This acquisition, in the wake of Arkema’s recent start-up of its coating resins and Coatex production plants on the Changshu site, will enable the Group to accelerate the development of its Coating Solutions segment in China and in Asia and to assist its customers in particular in fast-growing markets such as superabsorbents, paints, adhesives and water treatment. It also strengthens the Group’s position in high growth countries.

When the deal closes³, expected in summer 2014, Arkema will have access to half of the site’s installed production, namely 160,000 t/year, for a US$240 million investment. When the third line comes on stream, Arkema will have the option to access 2/3^rd of the site’s acrylic acid installed capacity, namely 320,000 t/year, for an additional US$235 million investment. In a full year, sales corresponding to both these lines are estimated at around US$600 million.

OUTLOOK

For 2014, market conditions should remain contrasted between the various regions. Meanwhile, a stable €/$ exchange rate compared to last year is assumed.

In 2014, the Group will pursue its growth strategy by implementing a capex program of some €450 million. The closing of the project to acquire Jurong’s acrylics assets in China, the start up of the Thiochemicals platform in Malaysia, the acceleration of R&D programs on composites, bio-sourced polymers and batteries and the implementation of productivity initiatives will be the top priorities of the year.

While remaining cautious about the economic environment, Arkema is confident in its ability to grow EBITDA in 2014. Over the longer term, Arkema confirms its ambition to achieve €8 billion sales and a 16% EBITDA margin by 2016, and €10 billion sales and close to 17% EBITDA margin by 2020.

2013 results and outlook are detailed in the presentation "Full year 2013 results” available on the website:

www.finance.arkema.com.

The consolidated accounts have been audited, and an unqualified certification report has been issued by the Company’s statutory auditors. These consolidated financial statements at 31 December 2013 and the statutory auditors’ report will be available late March in the reference document posted to the Company’s website (www.finance.arkema.com).

³ This operation remains subject to authorisation by the relevant authorities in China and to a number of administrative formalities.

FINANCIAL CALENDAR

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, some 14,000 employees and 10 research centers, Arkema generates annual revenue of €6.1 billion, and holds leadership positions in all its markets with a portfolio of internationally recognized brands.

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.

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 31 December 2013 closed by the Board of Directors of Arkema SA on 3 March 2014.

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: 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, acquisition expenses, badwills and stock valuation adjustments between the fair value on the acquisition date and the replacement value
  • Certain large restructuring and environmental expenses which would hamper the interpretation of recurring operating income (including substantial modifications to employee benefit plans and the effect of onerous contracts),
  • Certain expenses related to litigation and claims or major damages, whose nature is not directly related to ordinary operations;
• Recurring operating income: this is calculated as the difference between operating income and other income and expenses as previously defined;
• Adjusted net income: this corresponds to "Net income – Group share” adjusted for the "Group share” of the following items:
  • 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,
  • Net income of discontinued operations;
• EBITDA: this corresponds to recurring operating income increased by depreciation and amortization;
• Working capital: this corresponds to the difference between inventories, accounts receivable, other receivables and prepaid expenses, income tax receivables and other current financial assets on the one hand and accounts payable, other creditors and accrued liabilities, income tax liabilities and other current financial liabilities on the other hand. These items are classified in current assets and liabilities in the consolidated balance sheet;
• Capital employed: this is calculated by aggregating the net carrying amounts of intangible assets, property, plant and equipment, equity affiliate investments and loans, other investments, other non-current assets (excluding deferred tax assets) and working capital;
• Recurring investments: these correspond to tangible and intangible investments which exclude a small number of investments of an exceptional nature that the Group presents separately in order to facilitate the analysis of cash generation in its financial communication. These investments characterized by their size or their nature are presented either as non-recurring investments or in acquisitions and divestments;
• Net debt: this is the difference between current and non-current debt and cash and cash equivalents.

ARKEMA Financial Statements

Consolidated financial statements - At the end of December 2013