Arkema: Quarterly Information - 3rd Quarter 2015 Results

Regulatory News:

The Board of Directors of Arkema (Paris:AKE) met on 9 November 2015 to review the Group’s consolidated accounts for 3^rd quarter 2015. At the end of the meeting, Thierry Le Hénaff, Chairman and CEO, stated:

"Arkema achieved a strong performance with good cash flow generation in a third quarter marked by volatility in petrochemical raw materials and a soft global economic environment. Excluding Bostik contribution, EBITDA improved significantly, with the vast majority of product lines progressing over last year. Among major projects, Bostik confirmed the solid momentum of the first half, and began to benefit from first synergies. The thiochemicals site in Kerteh in Malaysia delivered an excellent quarter, whereas the performance of our new acrylics activities in China remained disappointing. While we remain cautious about the economic environment, we have increased our EBITDA guidance for 2015 released with the half-yearly results.”

¹Adjusted net income now excludes unrealized foreign exchange results on the financing in foreign currencies of non-recurring investments (Thiochemicals in Malaysia).

3^RD QUARTER 2015 PERFORMANCE

In 3^rd quarter 2015, Group sales reached €1,946 million, 31.7% up on 3^rd quarter 2014 with a +29.4% scope effect related to the acquisition of Bostik and the purchase of a stake in Sunke in Acrylics in China. The currency effect was positive at +7.0% mostly due to the strengthening of the US dollar versus the euro. Volumes, close to last year’s (-0.5%), reflected overall soft global demand. The trend in prices (-4.3%) was essentially due to the acrylics cycle.

EBITDA, at €286 million, was, for the third quarter in a row, significantly up (+38.2%) over last year. The integration of Bostik, the ramp-up of the new Thiochemicals plant in Malaysia, a positive currency exchange effect (translation) of some €20 million, lower input costs and a good control of fixed costs contributed in particular to this solid growth. EBITDA margin rose to 14.7% (against 14.0% in 3^rd quarter 2014) despite the acrylics cycle and the mechanically dilutive effect of Bostik’s integration.

In line with EBITDA growth, recurring operating income grew to €176 million against €120 million in 3^rd quarter 2014. It includes €110 million depreciation and amortization, up on last year (€87 million) as a result of the acquisition of Bostik, the purchase of a stake in Sunke, the impact of currencies, and the start-up of new production plants.

Non-recurring items amounted to -€15 million, including -€10 million corresponding to additional depreciation and amortization booked as a result of the revaluation of tangible and intangible fixed assets as part of Bostik purchase price allocation. The other non-recurring items mostly correspond to restructuring expenses.

Financial result stood at -€53 million against -€15 million in 3^rd quarter 2014 as a result of the higher cost of debt relating to the financing of Bostik acquisition as well as the recognition, following a sharp fall in the Malaysian ringgit versus the US dollar, of a €28 million unrealized currency loss on the financing in US dollars of the investments made in Thiochemicals in Malaysia. This last item had no impact on net debt.

Income taxes amounted to -€51 million against -€37 million in 3^rd quarter 2014. Excluding the reversal of €3 million provisions for deferred tax liabilities recognized as part of Bostik purchase price allocation, tax rate stood at 30.7% of the recurring operating income, reflecting the geographical split of the results, and in particular the share of the Group’s income generated in the United States.

Net income Group share stood at €61 million against €24 million in 3^rd quarter 2014. Adjusted net income stood at €95 million, i.e. €1.27 per share.

SEGMENT PERFORMANCE IN 3^RD QUARTER 2015

HIGH PERFORMANCE MATERIALS

High Performance Materials sales reached €866 million, +100.5% up on 3^rd quarter 2014, largely supported by the contribution of Bostik (€411 million sales) and a +6.8% translation effect. The -1.9% decrease in volumes reflects weaker demand in some applications in the oil and gas market. The price effect was stable overall (+0.2%).

EBITDA grew by +56% to €131 million against €84 million in 3^rd quarter 2014. This strong increase is the result of Bostik’s good performance in a moderate growth environment, thus confirming the relevance of its strategy and the benefits from first synergies. Excluding Bostik contribution, the segment’s performance is at last year level, lower volumes being offset by the positive impact of currencies and lower input costs.

EBITDA margin stood at 15.1% reflecting the mechanical dilutive effect of Bostik integration.

INDUSTRIAL SPECIALTIES

Industrial Specialties sales rose by 10.1% to €608 million against €552 million in 3^rd quarter 2014. This growth results from a +7.8% translation effect as well as a +3.2% increase in volumes supported by the ramp-up of the new Thiochemicals plant in Malaysia. These effects largely offset price variations (-1.3%) mainly resulting from product mix over the quarter and lower raw materials.

Up 39% compared to 3^rd quarter 2014, EBITDA reached €114 million, showing a strong improvement for the third quarter in a row. The excellent performance of Thiochemicals reflects the contribution of the Kerteh platform (Malaysia) which continued to enjoy strong demand in the animal feed market in Asia. PMMA results remained very good with a few signs of normalization. Certain fluorogases continued to enjoy higher prices than last year in a quarter with a traditionally less favorable seasonality. Finally, Hydrogen Peroxide again reported a solid performance, significantly up on last year.

EBITDA margin showed also a solid improvement compared to 3^rd quarter 2014, at 18.8%.

COATING SOLUTIONS

Coating Solutions sales stood at €465 million, -4.9% down on last year. The translation effect was positive at +6.5%, and the acquisition of a stake in Sunke resulted in a +4.1% scope effect. A -3.6% decrease in volumes reflects ongoing soft demand in construction and decorative paints in Europe as well as inventory adjustments at the end of the quarter in a context of high volatility of raw material costs. In line with the beginning of the year, the -11.8% drop in prices reflects the acrylics cycle and lower raw material costs.

EBITDA stood at €53 million against €51 million in 3^rd quarter 2014, while EBITDA margin reached 11.4%. The positive impact of currencies and the good performance of downstream activities supported by new developments at Coatex as well as lower costs helped offset lower margins in acrylic monomers. In this activity, unit margins were at low-cycle levels, particularly in Asia, and should remain so in the near future.

CASH FLOW AND NET DEBT AT 30 SEPTEMBER 2015

In 3^rd quarter 2015, Arkema generated +€172 million free cash flow², significantly up on 3^rd quarter 2014 (+€64 million). In line with the Group’s ambition reaffirmed at the Capital Markets Day in June 2015 to increase cash flow generation, this good performance reflects a strong EBITDA growth compared to last year and the good control of working capital and capital expenditures. Over 3^rd quarter, working capital decreased by €43 million³ reflecting the traditional seasonality of the activity and capital expenditure amounted to €103 million. Non-recurring items over the period were limited to -€3 million.

After taking account of the impact of portfolio management operations, net cash flow⁴ stood at +€167 million in 3^rd quarter 2015 against +€63 million in 3^rd quarter 2014.

As regards Group capital expenditures (including Bostik), Arkema maintains its forecast for 2015 which, adjusted for the impact of exchange rate variations (mostly US dollar versus euro), should represent some €470 million.

Net debt stood at €1,632 million at 30 September 2015 (against €154 million at 31 December 2014), i.e. 42% gearing. It is down compared to end June 2015 (€1,773 million). It includes €47 million dividend paid in cash in 3^rd quarter to shareholders who did not elect for the payment in shares. It does not include the €33 million interest due on the hybrid to be cashed out in 4^th quarter 2015.

3^RD QUARTER 2015 HIGHLIGHTS

Organic growth

In line with its ambition to expand in high-growth regions, Bostik increased its production capacities in Bangalore, India. This new hotmelt pressure sensitive adhesives (HMPSA) production plant will enhance Bostik ability to serve its global customers in the disposable hygiene market.

Financing

The multi-currency credit agreement for a maximum amount of €900 million signed in October 2014 for an initial 5-year term was extended for a further 12 months.

2015 OUTLOOK

The 4^th quarter 2015 should reflect the usual year-end seasonality, which might be amplified by current volatility of raw material prices and result in a more cautious behaviour from some customers towards the end of the year. The impact of the US dollar / euro exchange rate should remain positive, but far less material in the fourth quarter than in previous quarters. Unit margins in acrylic monomers are expected to remain at low-cycle levels, in particular in Asia.

At the end of the year, Arkema will continue to benefit from Bostik’s contribution and the ramp-up of the Thiochemicals platform in Malaysia, as well as its operational excellence efforts to offset part of the inflation on fixed costs. The improvement in the fluorogas activity should be limited in the quarter given the traditional year-end seasonality of this business.

Based on these drivers and the strong performance of the first nine months of the year, Arkema increases its EBITDA target (including Bostik contribution) for 2015 up to a range of €1,020 million to €1,040 million (Arkema had announced late July an EBITDA target for 2015 "slightly above €1 billion”).

The 3Q 2015 results are detailed in the presentation "3^rd quarter 2015 results” available on the website: www.finance.arkema.com.

FINANCIAL CALENDAR

A designer of materials and innovative solutions, Arkema shapes materials to create new uses. An innate innovation entrepreneur, we accelerate customer performance every single day and generate revenues of €7.5 billion each year.

Buoyed by the collective energy of our 19,200 employees, we cultivate interaction with the world around us.

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 30 September 2015 reviewed by the Board of Directors of Arkema SA on 9 November 2015.

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 described below. The "Adjusted net income” performance indicator has been amended to exclude unrealized foreign exchange results on financing in foreign currencies of non-recurring investments.

• 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,
  • Depreciation and amortization related to the revaluation of tangible and intangible assets identified as part of the allocation of the Bostik acquisition price;
• 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,
  • Unrealized foreign exchange results on financing in foreign currencies of non-recurring investments;
• EBITDA: this corresponds to recurring operating income increased by depreciation and amortization recognized in the recurring operating income;
• 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151109006805/en/